The slowing economy has not as yet caused a decline in the percentage of home loans applications being approved by the banks, but it has caused them to start raising deposit requirements in recent months, according to Shaun Rademeyer, CEO of BetterLife Home Loans, SA’s biggest mortgage originator.
“Our statistics* show that as yet we are still securing approvals for 75% of the home loan applications we submit, and that the banks are still keen to grant home loans. However, they are applying strict affordability criteria in terms of the National Credit Act, with the result that most buyers now require a bigger percentage of the purchase price as a deposit than they did a year ago,” he says.
“The main reason for this change is the steady rise in interest rates since July last year, which has pushed up the monthly repayments on all kinds of debt and, combined with rising inflation, has put many household budgets under pressure and negatively affected housing affordability.”
After paying all their monthly bills, many households just don’t have enough disposable income left at the moment to comfortably afford a bond repayment, and in such circumstances, the banks have no choice but to restrict the size of loans they make – with the result that prospective buyers must either purchase less expensive properties or put down bigger deposits.
“Indeed, as the table below shows, there is a ‘sliding scale’ of deposit payments according to property price, with buyers who fall into the R250 000 to R500 000 purchase price category currently paying an average of around R31 000, for example, and those who fall into the R500 000 to R1m category paying an average of around R93 000.”
Average deposit required per price category
|Purchase price||Av deposit 12-months to end-May 2016||Maximum % of purchase price|
|R0 to R250k||R17 205||–|
|R250k to R500k||R30 638||12,3%|
|R500k to R1m||R93 371||18,7%|
|R1m to R1,5m||R222 353||22,2%|
|R1,5m to R2,5m||R432 277||28,8%|
Source: BetterLife Home Loans
Rademeyer states that given the mounting pressures on SA’s lending institutions to lower their risks and increase their reserves, it isn’t expected that the trend of increasing deposit requirements will change for some time, so those who are currently on the fence about buying property should prioritise debt repayments and savings to enable them to make a purchase as soon as possible.
“And first-time buyers may actually find it somewhat easier to take this step than others, purely because the deposit criteria in the price categories they favour are relatively low. The BetterLife Home Loans statistics show that in May, the average first-time buyer home price was R724 000, and the average percentage of purchase price required was just R86 000 or 12% of the purchase price.
“By contrast, the average home price for repeat buyers reached R1,04m, well up from the R972 000 recorded a year before, and this rise combined with the increased deposit requirements means that these buyers are currently required to have around R218 000 (21% of the purchase price) available in cash before applying for a home loan, in addition to the funds required to cover transfer duty, bond registration and legal costs.”
Consequently, says Rademeyer, first-time purchases as a percentage of the total are not expected to fall far from the current 46% level in the coming months.
“We do, however, foresee that the average home price may stall and even decline as the higher deposit requirements at the top end of the market cause many repeat buyers not to upgrade but to downsize and opt for smaller and less expensive homes.”
*The BetterLife Home Loans statistics represent 25% of all residential mortgage bonds being registered in the Deeds Office.