While the slowing economy has not as yet caused a decline in the percentage of home loans applications being approved by the banks, they have begun to raise deposit requirements in recent months.
This is according to Shaun Rademeyer, CEO of mortgage originator, BetterLife Home Loans.
“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 said.
“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.”
Average deposit required per price category
|#||Purchase price||Av deposit 12-months||Maximum % of purchase price|
|1||R0 – R250,000||R17,205||–|
|2||R250,000 – R500,000||R30,638||12.3%|
|3||R500,000 – R1 million||R93,371||18.7%|
|4||R1 million – R1.5 million||R222,353||22.2%|
|5||R1.5 million – R2.5 million||R432,277||28.8%|
After paying all their monthly bills, many households just don’t have enough disposable income left to comfortably afford a bond repayment.
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, the mortgage originator said.
“Indeed, as the table 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 R1 million category paying an average of around R93,000.”
New data on new mortgage lending from the South African Reserve Bank showed a significant year-on-year decline – which is in line with numerous indicators of residential activity pointing to slowdown in the property sector.
The June 2016 SARB Quarterly Bulletin showed the value of new residential mortgage loans granted have declined by 14.57% year-on-year for the 1st quarter of 2016.