Mortgaging the Future? – Pension-­‐Secured Housing Loans

This paper is a case study prepared for  UCT’s Housing Finance Programme for Sub-Saharan Africa.

Abstract: in developing economies, home ownership and access to housing finance for the lower-­income sectors of society remain a pressing challenge for policymakers. The best efforts of housing authorities are often bedevilled by the twin ‘evils’ of: (i) the inability of prospective homeowners to afford regular repayments for housing finance, and; (ii) the absence (or insufficient) savings to serve as collateral to secure housing finance or to contribute towards a deposit (down payment) to reduce the loan amount. Pension-­supported housing loans have been introduced in some jurisdictions as a means of addressing affordability constraints and the lack of savings. Accessing accumulated retirement savings to serve as collateral to secure housing finance has proved to be successful in certain instances but also has its fair share of detractors.

The paper is written as a teaching case with the following objectives:

  1. Provide a high-level understanding of the pension-secured loan product and associated market dynamics in South Africa.
  2. Initiate discussion on the relevance (or not) of the pension-secured loan product along the spectrum of housing finance products.
  3. Encourage housing finance product innovation.

The primary target audience for the teaching case are delegates attending the “Housing Finance Course for Sub-Saharan Africa” which is held annually at the University of Cape Town’s Graduate School of Business, usually in October. Other audiences include policymakers, financiers, community-based organisations and other private sector participants involved in designing housing finance solutions.

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