Zuma paid back the money

President Jacob Zuma has paid the money for the non-security upgrades to his private residence, Nkandla, as ordered to do so by the Constitutional Court. According to a statement released by the Presidency, he used a home loan acquired from VBS Mutual Bank to pay the R7.8 million owed.

The statement said: “President Zuma has paid over the amount of R7,814,155 to the South African Reserve Bank as ordered by the Constitutional Court of South Africa in respect of his private homestead at Nkandla.

“The President raised the amount through a home loan obtained from VBS Mutual Bank on its standard terms, one of the few financial institutions which offer home loans in respect of land owned by traditional authorities.”

Can Zuma afford the loan?

There are many questioning how the President acquired the home loan, including opposition parties. One of the concerns regarding VBS Mutual Bank providing the home loan is that the Public Investment Corporation (PIC) has a 25% stake in the bank.

“The PIC, a registered financial services provider, is wholly owned by the South African Government, with the Minister of Finance as shareholder representative,” explained the PIC website.

According to the VBS Mutual Bank website, when applying for a home loan, the following qualifying criteria must be met:

• The property to be built or acquired must be situated in a demarcated area where there is a deed of grant or tittle deed.
• The mortgage bond amount applied for must not exceed the market value of the property.
• The applicant(s) must have proven source(s) of income to service the required instalment repayment.
• The instalment must not exceed 30% of the applicant(s) gross income.

So can Zuma afford the loan? FinCheck, a financial comparison website, provides the following information pertaining to home loans from VBS Mutual Bank:

• Interest charged – 9.5%
• Monthly service fee – R57
• Initiation fee – R5,700
• Repayment term – 30 years

Earlier this year, Parliament approved Zuma’s annual salary of R2.8 million. Over a 12 month period this works out to approximately R233,333 per month.

According to the Bond Busters’ mortgage calculator, with a salary of R233,333 per month, an interest rate of 9.5% (as stated above), and a repayment term of 360 months (30 years), a person (i.e. President Zuma) would be eligible for a home loan to the value of R8,324,855.77 paying a monthly instalment of R69,999.89.

Justmoney used the Property24 bond calculator to determine an approximate monthly repayment amount for President Zuma based on a total loan value of R7,814,155, with an interest rate of 9.5% paid over 30 years. The calculator provided the following results:

• Monthly repayment – R65,706
• Total payment (including interest and the initial bond amount) – R23,654,034
• Total interest – R15,839,879

It looks like Zuma can, in fact, afford the loan comfortably with the salary that he earns but the other question that hasn’t been answered is whether he can afford this repayment along with all the other debt that he may owe? Has VBS therefore done a proper affordability assessment or did the company just grant him the money, considering the customer they were dealing with? Or perhaps President Zuma put up some kind of collateral or someone in his family or circle stood as surety. Unless some sort of investigation is requested, we’ll never know.

Opposition parties respond

The announcement by the Presidency that Zuma paid back the money does not appear to be enough to quieten the voices of the opposition parties.

In a statement released by the Democratic Alliance (DA) is said: “The DA welcomes the announcement by the National Treasury that President Jacob has paid back R7.8 million to the people of South Africa for his liability for the taxpayer-funded upgrades at his private Nkandla residence, but we maintain that this is only the tip of the iceberg in this corruption-plagued saga.”

The DA is calling for the President to provide proof to the National Assembly “that he personally paid the R7.8 million, and that the VBS Mutual Bank is not a front. The President has a history of tapping into his circle of cronies for funds.”

The Congress of the People (COPE) are also calling for proof of payment to be provided. “We will only believe this when we see the proof of payment. Mr Zuma has said on many occasions that he will not pay back the money. Even if Mr Zuma paid this amount of money it will never take away the fact that he has broken his oath of office and that he is no more an honourable president.

“COPE demand that he vacate the office of the President,” said COPE in a statement.

The Economic Freedom Fighters (EFF), meanwhile, were quick to take credit for the move. They said that it is because of their “insistence and persistence that the remedial actions of the Public Protector must be complied with.”

The EFF added: “It was through EFF's efforts and relentless struggle that Zuma paid back the money on the undue benefits he received through the largely corrupt construction of his private residence in Nkandla. The EFF's work on anti-corruption and undue benefits to politicians should be celebrated by all South Africans because South Africa's fiscus has additional money from Mr. Zuma.”

However, the EFF has confirmed that it intends to further clarify the circumstances around Zuma acquiring the loan from VBS Mutual Bank.

Applying for a home loan

So what criteria do banks take into account when awarding someone an extension on their mortgage or even a second home loan? “Absa reviews all home loan applications on a case by case basis. In addition to the applicant’s credit profile, we also consider their ability to service the loan over the repayment period. The bank will only consider lending over property against which the applicant can obtain full title and a bond could be registered to use the property as security for the loan,” explained an Absa spokesperson.

According to a home loans expert, the banks’ criteria for lending people money are important. “In terms of the National Credit Act (NCA) that came into effect a few years ago, and the amendments to that act a few months ago, there are two basic hoops that people need to jump through in order to get access to a credit provider.

“The first one is that your credit report needs to be in good standing. What the banks are looking for is a minimum credit score of 600 or above, also known as an empirica score. You can’t have any arrears or judgements on your credit report. Banks have their own systems that they use, and when home loan applications get sent in, their system flags credit reports and checks it, so if your home loan application you send in with the credit report doesn’t meet that criteria, it is rejected straight away.”

Furthermore, the expert noted that offering surety or collateral for a loan is something that is not often agreed to by banks. He explained that anything that could lend itself to reckless lending, credit providers will attempt to stay far away from it.

When it comes to lending money, the home loans expert pointed out that banks look at the risk profile of the individual. He noted that Zuma would most likely get a home loan over a 20 year repayment term due to his age (74 years). “Banks will take it on a case by case basis, and everything boils down to risk, what is the likelihood of the bank getting their money back?” If it is a 20 year period this would boost Zuma’s repayments up to R72,838 (using the Property24 bond calculator based on a total loan value of R7,814,155, with an interest rate of 9.5%).

There are still a number of questions surrounding the issuance of the home loan to President Zuma. It is not yet clear if any of these will be answered.

 Handy tip: Do you need a home loan? You can apply for one on Justmoney, click here.