By the Banking Association South Africa (BASA), in collaboration with the National Department of Human Settlements
The National Department of Human Settlements and The Banking Association South Africa (BASA) recognise that a functioning residential property market offers an opportunity to expand the lending spectrum and increase levels of household investment in housing to achieve greater economies of scale.
This is because access to housing finance plays a critical role in enabling homeownership for most households. The policy reforms of the National Department of Human Settlements are now implementing the necessary shifts to respond to market needs by also concentrating on demand-side subsidy instruments within sub-segments of the Affordable Housing Market. This is aimed at broadening the reach of the subsidy instruments and deepening market penetration.
The remodelling of the Finance Linked Individual Subsidy Programme (FLISP) aims to ensure that the subsidy instrument is efficient, that it will achieve the intended redistributive policy objective and that it will have a positive impact on the overall affordable housing market. The FLISP policy adjustment is further premised on the recognition that the success of any subsidy programme depends on a subsidy delivery mechanism and administration system that is efficient, effective, and simple to implement.
The affordable housing segment of the property market is comparatively growing much faster and is more robust than the middle to upper market housing segments. Research studies have shown that low- and moderate-income earners are significantly constrained from accessing what is considered as affordable housing due to a lack of appropriately priced housing stock and rising house prices. Therefore, the State is mindful of the fact that a mortgage bond is not particularly suitable as a financing instrument for the poor as it is premised on households being able to demonstrate regular income as well as a credit and employment track record.
FLISP, first introduced by the National Department of Human Settlements in 2005, acknowledges the importance of cross-sector collaboration between, government departments, the private sector and government entities in bridging the affordability gap between access to housing finance (entry-level housing) and the range of mortgage instruments available in the market that can be used to boost the purchasing power of prospective homebuyers in the affordable housing market.
Due to the implementation challenges established through various performance evaluations of the programme, the Department has comprehensively revised FLISP to not only cover the supply side subsidy instruments but to also concentrate on demand-side subsidy linked products whose feature combination will contribute towards expanding entry-level housing.
As a response to market needs, FLISP has been catalysed so that it be linked not only to mortgage financing but also for all non-mortgage housing via diversified mortgage and non-mortgage offerings. Some of the key policy adjustments worth noting are as follows:
The programme will be expanded to include non-mortgage housing facilities:
- Housing loans supported by pension and provident funds (pension backed loans).
- Housing loans supported by cooperative or community-based schemes.
- Housing loans supported by employer-based schemes.
- Housing loans that are not supported by any form of security (unsecured loans used for housing purposes).
- Housing Finance facilities other than loans (such as instalment sale, deed of sale and rent-to-own agreements).
The revised administrative process will consist of:
- The Government Employee Housing Scheme which will administer all FLISP applications that are linked to it;
- Provincial Departments will process FLISP applications that are linked to approved Integrated Residential Development Programme (‘IRDP’) projects; and
- The National Housing Finance Cooperation will act as the National Implementing Agent for the FLISP Programme, and so they will process all other FLISP applications.
The revised programme aims to broaden options for accessing homeownership in both urban and rural areas and will allow beneficiaries to use the FLISP Subsidy for the following purposes:
- To buy a new build or an existing home.
- To buy a stand which must be (1) connected to municipal services; (2) zoned for housing.
- To pay for the building of a house on a stand which the household/applicant already owns and which must be (1) connected to municipal services (2) zoned for housing (3) be enrolled with the NHBRC (4) Linked to a building contract with an NHBRC registered contractor.
- To pay for the building of a house on a stand which is part of an IRDP project, and which must be (1) connected to municipal services (2) zoned for housing (3) be enrolled with the NHBRC (4) linked to a building contract with an NHBRC registered contractor.
Registered owners of a Permission to Occupy are not deemed to be homeowners and those who are owners of a vacant/housing stand are also not deemed to be homeowners, but they can benefit from FLISP if they meet the qualification criteria in the proposed new policy.
In an effort to improve turn-around times in respect of processing FLISP applications and to address previous institutional shortcomings that were impeding the implementation of the Programme, a pre-qualified applicant may request and be granted a guarantee certificate before they approach a lender for housing finance. The new Policy Framework recognises that for FLISP to be successfully implemented it is crucial that lenders continue to facilitate lending to qualifying beneficiaries.
The category of households that the programme intends to assist continues to be households that have been unable to access mortgage loans without some housing finance support from the State in the form of a capital subsidy.
The ‘new look’ FLISP aims to increase the range of financing options, improve regulatory efficiency, resolve long-standing administrative and implementation challenges, and presents an opportunity for the participation of a wider range of lenders into the affordable housing market. Expanding the Policy Framework to include non-mortgage financing options could potentially have a positive impact on market activity, encourage robust cross-sector collaboration, increase consumer awareness and access to reliable information, promote development in previously under-serviced housing markets, compel a more concerted effort to address issues of affordability for many consumers/households within this market segment and empower aspiring home-buyers to take advantage of the financial support offered by the programme.
The following steps can be taken by Estate Agents or Developers if they have a client that may be interested in the programme and who meets the qualifying criteria. It is important to note that the steps will differ depending on the nature of an application, that is, if the applicant wishes to purchase a property in the open market versus a property within an IRDP project or make use of mortgage finance, a pension backed loan or the Government Employees Housing Scheme. All these aspects will influence the steps to be taken. For this article, the National Department of Human Settlements has put together generic steps based on the assumption that most applications will be made for an open market property.
- Clients to be informed of the existence of FLISP and its benefits.
- Remember to inform the client of the implications of the pre-emptive right as set out in Sections 10A and B of the Housing Act, 1997.
- Inform the client of the intent of FLISP, is for it not to be used to increase the home loan amount.
- Estate Agents are not to deviate from normal procedures but ensure that an application for FLISP forms part of the loan application. This is important as numerous prospective homebuyers might have already approached a lender. It is also possible that some smaller branches may not be familiar with all aspects of the FLISP.
- Developers may refer a prospective buyer to a lender/s but with the explicit request that the lender familiarises him/herself with the principles of the FLISP.
- Interact with the lender to confirm a person’s qualification to the FLISP (Qualification criteria is set out below):
- An applicant is either a South African citizen or is in possession of a permanent residence permit.
- The applicant is of sound mind and legally competent to contract. That is, he or she is at least 18 years old; and, if not, then is either legally married or legally divorced.
- Applicant or spouse has not previously received a housing subsidy from any sphere, arm or entity of government.
- Applicant or spouse has not previously owned a house. Registered owners of a PTO are not deemed to be house owners. Those in possession of a vacant or housing stand are also not deemed to be house owners.
- Applicant is:
- Married (whether in terms of civil law or customary law); or,
- Habitually cohabits with any other partner; or,
- Single: (1) if not yet married, widowed, or divorced but with at least one financial dependant; or (2) if an aged person who qualifies for the government’s old age social grant, whether he/she has financial dependants or not.
- The gross monthly income of the applicant’s household must be within the range determined by the Minister of Human Settlements and as specified in the FLISP Implementation Schedule that the Minister publishes on an ‘as-and-when’ basis. (As specified in the FLISP Implementation Schedule that the Minister publishes on an ‘as-and-when’ basis, special dispensations are made for sub-categories of FLISP beneficiaries, each with its own assessed set of challenges).
- Always remember that the lender will be responsible for assisting with the completion of a FLISP application form and to submit it to the National Implementing Agent.
- It is important to take adequate steps to ensure that an application for FLISP is approved before the transfer of ownership. If this requirement is not met, the buyer will be disqualified from participating in the programme. The reason for the disqualification will be that at the time of the consideration of the FLISP subsidy application, the applicant was already a homeowner and as such did not meet the qualification criteria.
- Should an estate agent or developer be faced with any uncertainty from other role players or have difficulties in assisting clients with their FLISP applications, they should consider contacting the relevant lender or the National Housing Finance Corporation (which is the appointed National Implementing Agent).
In terms of the processes for pension-backed loans or unsecured loans. An applicant making use of this type of financing instrument will be subject to the same qualification criteria and processes, as highlighted above, the difference being the source of finance. In the case of pension-backed loans, the relevant Pension Fund will in terms of their own criteria determine the level of assistance that will be provided to the applicant. Depending on the size of such a loan the homebuyer must then decide whether or not he/she wishes to obtain additional funding from another lender.
The FLISP Policy Guidelines still need to be formally approved by oversight committees within the National Department of Human Settlements and we, therefore, do not expect this to be approved before July 2021, and only once the policy guidelines have been approved by the Minister, will FLISP applications be considered in the manner explained in this article.