When the President announced the new FLISP (Finance Linked Individual Subsidy Programme) in his 2012 State of the Nation Address, the groundswell of interest and enthusiasm for this subsidy was not anticipated. Since then, this website has been inundated with requests for information, people asking whether they qualify and for how much, arguing that they are in that “gap” market, too rich to qualify for the RDP subsidy, and too poor to afford the cheapest newly built house available on the market.
While the FLISP subsidy has already helped some people – the President announced in this year’s State of the Nation Address that R70 million had already been expended in the programme – its impact has been limited. Actual delivery numbers haven’t been reported. However, if we estimate that if the average subsidy was about R40 000 (depending on the income of the household applying), it would appear that only about 1750 beneficiaries would have benefited.
Two problems have plagued the new FLISP since it was launched last year – the availability of new housing, and its cost.
• First, the subsidy was only available for households purchasing new housing costing less than R300 000 and in projects approved by the National Housing Finance Corporation (NHFC). This meant that the NHFC had to enter into agreements with developers to approve projects, and this process took time. This also meant that there were very few new houses available in this price range.
• Second, the fixation on new housing meant that only higher income borrowers in the FLISP target market range of household income R3501 – R15 000 would be able to apply. The cheapest newly built house in South Africa today is about R270 000 – and in most cases closer to the R300 000 limit. Even with the FLISP subsidy, this house would only be affordable to a household with no other debt, earning about R7 500 (for a R270 000 house, estimating a subsidy of about R60 675 and a mortgage loan of about R209 325), or more likely, R8 500 (for a R300 000 house estimating a subsidy of R53 250 and a mortgage loan of about R246 750).
Combining the factors of limited supply and limited affordability, the FLISP subsidy to date has had only a limited impact. Potential applicants have had to wait to be included in a list for houses that still had to be built, and people earning less than R7500 found that the math didn’t work: even with higher subsidies, they couldn’t afford enough mortgage finance to buy the houses that were being built.
This is now changing. The FLISP is now available to households buying homes on the resale market, in Gauteng, KwaZulu Natal, Free State, Eastern Cape and the Northern Cape; with North West and Mpumalanga soon to follow. The NHFC calls this programme “Open Market Access”.
In terms of the policy, the FLISP subsidy may now be used in one of three ways:
1. To buy a new house costing less than R300 000, that is part of the NHFC’s Accredited Project Developments in the various provinces.
2. To buy a new or an existing house on the resale market, costing less than R300 000
3. To buy a vacant, serviced, residential stand and a build a house on it, such that the total price of the property is no more than R300 000.
This now solves both problems: there are many more houses in the resale market than what the NHFC’s Accredited Project Developments could ever hope to build; and there is a much greater variety in price – houses costing as little as R100 000 can be found in some areas.
If the banks agree to provide a mortgage to someone earning R3501 (and assuming they had no other debt) – the bottom of the eligibility range – this is what that household might be able to afford:
• Mortgage (estimated at 11% interest, over 20 years, 25% instalment to income): about R84 771
• FLISP subsidy: R87 000
• Potential funding available for the transaction: about R171 771
• Target house price: about R160 000 – R165 000 (It is important to keep some money back to facilitate the transaction)
But they wouldn’t have to take the whole mortgage – because this is an example of what is available:
At these prices, the household could take their FLISP subsidy of R87 000 and add a mortgage of a limited amount (we need to establish what the minimum mortgage would be), and then possibly even have some finance over to do some renovations.
Or, the household might buy this house, with their subsidy of R87 000 and a bond of about R40 000. Given the size of the bond, they would probably be able to pay it off much more quickly than the 20 years on which a mortgage bond is normally scheduled.
If the banks agree to provide a mortgage to someone earning R4500, this is what the household might be able to afford:
• Mortgage (estimated at 11% interest, over 20 years, 25% instalment to income): about R108 992
• FLISP subsidy: R80 250
• Potential funding available for the transaction: about R189 242
• Target house price: about R175 000 – R180 000 (It is important to keep some money back to facilitate the transaction)
If the banks agree to provide a mortgage to someone earning R5500, this is what the household might be able to afford:
• Mortgage (estimated at 11% interest, over 20 years, 25% instalment to income): about R157 433
• FLISP subsidy: R66 750
• Potential funding available for the transaction: about R234 183
• Target house price: about R225 000 – R230 000 (Again, it is important to keep some money back to facilitate the transaction)
The household need not get the full mortgage for which they qualify for, however. Becase they can use the FLISP to buy in the resale market, they might find cheaper housing, meaning that their monthly bond repayment will be lower. Here are some more examples:
And so on… The point is, that there are far many more resale market houses costing below R300 000 than there are newly built houses. And when the sellers of those houses get the purchase price they ask for, they can buy higher value houses that are being newly built. That is why the secondary, or resale market is so important for the functioning of the entire property market – and finally, our policy is acknowledging this.
Of course, households who have pre-existing debt will struggle to access mortgage finance for the house they aspire to own – they may have to consider downscaling to a smaller dream while they sort out their finances.
The NHFC has prepared a detailed pamphlet setting out how the policy works – this can be downloaded here. There is also a presentation, which provides a little more detail. Lastly, the application form for the FLISP is also available on the NHFC website. I look forward to watching how this policy evolves, and how many people make applications for resale market houses. I also look forward to seeing how the banks react to the increase in applications they are likely to receive! Depending on the budget available from the provincial departments, this subsidy instrument stands to make a serious difference to our housing market.
Please let me know how it goes.
(Property listings taken from Property24.com)