Banks start to pull the purse strings tighter on home loans

A sharp drop in the number of 100% home loans granted in March compared to January and February indicates that the banks, concerned about high levels of household debt in the face of rising interest rates, are tightening up again on credit qualification requirements for prospective homebuyers.

South African home loans statistics

So says Shaun Rademeyer, CEO of BetterLife Home Loans, which as SA’s biggest mortgage originator assists thousands of buyers a month to obtain home loans. “Our latest statistics* show that the percentage of home loans granted for 100% of the property purchase price fell to 37% in March, from 41,3% in January and 40,1% in February – and that by far the majority of these loans were granted in the affordable sector of the market.

Banks are showing concern over low disposable income

“This shows that the banks are concerned at the fact that the average household debt to disposable income ratio is still stuck at around 78% at a time when consumers are not only having to contend with rising interest rates and higher instalments on their debts, but also having to pay more for electricity, water, transport, food, education and health.”

To add to the banks’ worries, he says, household disposable income growth has steadily been falling off, from a high of 4,6% in 2011 to just 1,4% last year, and could stall altogether this year due to a further slowdown in the economic growth.

Banks’ responsibility to homebuyers

“In the face of all this, and considering their responsibility in terms of the National Credit Act to ensure that borrowers do not become over-indebted, it is no wonder that banks are now trying to encourage borrowers to keep their monthly home loan instalments down by paying relatively large deposits.”

An increase in average deposit

It is also no surprise, says Rademeyer, that the average deposit required has risen from around 19% of the property purchase price in January to 21% currently – “although it is encouraging that first-time buyers, who generally buy for less than R750 000, are still only having to pay an average of around 13% of the purchase price of their homes in order to obtain a bond”.

Some positive news for homebuyers

Other positive news in the latest BetterLife statistics, he says, is that the average approved bond size for first-time buyers rose by more than 4% in the 12 months to end-March compared to the previous 12 months, while the average home price in this sector grew only 3%.

“In addition, first-time buyers accounted for more than 46% of all home loan applications over the past year and for almost a third (32%) of all home loan approvals, so the market is still showing healthy demand and expansion that bodes well for the future, especially as these buyers move up the property ladder.”

The BetterLife statistics also reveal that the biggest proportion (40%) of home loans approved over the past year were for home purchases in the R500 000 to R1m price category, while a further 31% were for purchases over R1m, and 24% for purchases in the R250 000 to R500 000 range.

*The BetterLife Home Loans statistics represent 25% of all residential mortgage bonds being registered in the Deeds Office.

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