The extent of the improvement in the residential property market over the past two years is clearly indicated in the latest statistics from BetterBond, which show that home loan approval rate has risen from 61% in March 2011 to 69% in March this year.
The extent of the improvement in the residential property market over the past two years is clearly indicated in the latest statistics from BetterBond, which show that home loan approval rate has risen from 61% in March 2011 to 69% in March this year.
During the same period, the average home purchase price paid by BetterBond clients has fluctuated quite widely, hitting a low of R780 000 in January 2012 and spiking to R960 000 in August 2012, but has generally also shown an upward trend, to reach R905 000 in March this year compared to R786 000 in March 2011 (a 15% increase).
However, notes BetterBond CEO Rudi Botha, the average deposit percentage required by lenders has varied very little over the past two years, with the result that the average home loan amount approved has risen from some R700 000 in March 2011 to R738 000 last month.
“Obviously, the banks are feeling increasingly comfortable about lending into the residential market again, as the balance of supply and demand improves. In addition, most prospective borrowers now have much better financial profiles than was the case two and three years ago.”
But the BetterBond statistics, which represent a quarter of all residential mortgage bonds being registered in the Deeds Office and include applications to, and bond grants from, all the major lending banks in SA, also show that while first-time buyers continue to account for a large percentage of home loan applications, that percentage has declined from 48% in March 2011, to 39% in March 2012 and 36% in March this year.
“It’s clearly getting more difficult for first-time buyers to enter the market,” says Botha. “While the average purchase price in this sector has risen some 7,5% in the past two years, the average home loan amount approved has only increased by about 6%, indicating that first-time buyers need bigger cash deposits to secure loans.
“And because salaries have not been rising as fast as the cost of major budget items like food, transport and utilities, it is becoming harder for prospective buyers to save these amounts. In addition, because they are usually either still living at home or renting, first-time buyers have more flexibility when it comes to deciding when to buy, and they will often back off from the market when economic growth drops – as it has in the past year – and business confidence and employment prospects start to look shaky.”
On the other hand, he says, the steady if slow increase in middle-bracket home prices in the past two years means that repeat buyers now often have considerable equity in their existing homes, which can go a long way towards covering the deposit required to purchase their next property.
“Such buyers are thus the ones best placed at the moment to make the most of the historically low interest rates. Indeed, if they have a sound credit record and sufficient income as well as a substantial deposit, they can now often upgrade to a better property for not much more per month than they are paying for their current home. They should always, however, consult a reputable mortgage originator and get bond pre-approval before making such a move.”
