National Standard alongside its strategic partner, Housing Investment Partners (www.hiphousing.co.za), intends to launch a Pension Backed Private Debt Impact Fund by mid-2022 for purposes of providing mortgages to low to middle-income earners in what is commonly referred to as the housing gap market. This is the market that is not adequately covered by current financial services and social benefits, consisting of those individuals that earn too much to qualify for government housing subsidies but struggle to secure conventional mortgage loan finance.

Many low to middle-income earners who are members of many Retirement Funds continue to struggle to secure housing finance despite having accumulated Fund Credits. Most are not even able to build decent houses in their rural areas where they retreat on retirement. The proposed Pension Backed Housing Fund seeks to create a new industrywide Fund to attract impact investing from conscious Retirement Funds who may wish to pull resources to improve the quality of lives of South Africa’s low to middle-income workers pre and post-retirement. A pension backed fund leads to a lower risk of capital loss due to the additional security of pension fund credit guarantees, which should attract more retirement fund investment.
The underlying mortgage product into which the Fund intends to invest is an innovative product currently offered by Housing Investment Partners (“HiP”) (www.hiphousing.co.za) where the repayments are linked to salary increases. The innovative mortgage product called the HiP Home Finance is an income-linked Home Finance Mortgage Credit product granted for purposes of acquiring residential property for habitation by homeowners and their families.

This financially innovative product enables lower-to-middle income earners the opportunity to purchase an investment-grade home earlier than they would otherwise be able to achieve. Potential homeowners are able to enter the housing market at an earlier stage as their initial instalments are lower than a conventional mortgage loan. As the client’s income increases over time, so too do their instalment. In addition, HiP also offers a conventional mortgage loan to which HiP’s clients are expected to switch, once the income-linked mortgage loan instalments are greater than the conventional mortgage loan instalments.

HiP’s innovative income-linked mortgage product is summarised as follows:

Product:

• Innovative income-linked mortgage loan
• Enhances affordability for GAP market –lower initial instalment
• HiP bears the interest rate risk
• Repayments escalated annually by CPI plus 1%
• Life cover included in instalment –death, disability and retrenchment
  • Homes acquired earlier – less time to defaulted

Target market:

• Full-time, formally employed
• Earn between R 3 500 and R 30 000 per month
• 21 –45 years old
• Sustainable earnings potential
• First property, primary residence