Adapting Netherlands 'Starterslening' Model to Improve the Current Finance Linked Individual Subsidy Scheme in South Africa

Abstract

Finance Linked Individual Subsidy Scheme Programme (FLISP) assists households who earn between R3 501 to R22 000 to get additional funds from National Housing Finance Corporation of R130 505 to the lowest income band and R30 001 to the highest income band in South Africa. This money can be used to pay for deposit or legal fees. The problem is that there has emerged a 'sandwich' class of households who earn just above the R22 000 threshold and still cannot afford entry level mortgages. Adapted from Netherlands starterslening model, the paper conceptualized a hybrid FLISP that can absorb the sandwich class termed FLISP-plus. To this class, the National Housing Finance Corporation would give 70% of the R30 001 (R21 001) while FI offer a 30% additional loan (R9 000) which can be paid after 3 years. The applicability of the proposed FLISP-plus to the South African market was evaluated by analysing responses from interview data, purposefully sampled respondents from the Department of Human Settlements (DHS) and the financial institutions. Results showed that 'education' and 'credit score' for the FLISP-plus in affordable mortgages were common themes. Further, the results showed that the proposed FLISP-plus can be adopted for the proportion of the sandwich class segment whose credit scores are low but whose incomes are high. Households can work towards improving their credit scores in order to access FLISP-plus. The study concluded that DHS can train the sandwich class to educate them on how to manage their finances well for FLISP plus to be successful in increasing homeownership. On the other hand, financial institutions can train them on different products that can support savings towards consistent mortgage payments, making