The average home price paid by first-time buyers has risen by a modest R37,000 in the past 12 months, but the average home loan installment has increased by almost R700 a month.
This is despite the fact that buyers are paying much bigger deposits than they did a year ago according to mortgage originator, BetterLife Home Loans.
“This represents a clear decline in affordability for first-time buyers. We believe potential first-time buyers should make a decision about buying property as soon as possible, because it is going to become increasingly difficult for them to become homeowners in the next 12 to 18 months, even if there are no further interest rate increases,” said Shaun Rademeyer, CEO of BetterLife Home Loans.
“Our latest statistics show that while the average first-time buyer home price has risen by 5.7% in the past 12 months, the average deposits paid by such buyers – as a percentage of purchase price – has risen from 11.1% to 12.3%, taking the actual rand amount of the average deposit in this sector from R79,000 to R92,000.”
Intuitively, Rademeyer noted, one would expect this to have lowered the average monthly bond repayment for first-time buyers, “but unfortunately, there were also three interest rate increases in the past 12 months which caused the variable home loan rate to move from 9.5% to 10.5%, and the result has been an increase of almost R700 in the average instalment”.
Larger household incomes needed to secure home loans
“At the same time home prices have continued to rise, albeit slowly, and at this stage are set to keep rising, especially now that South Africa has escaped a rating downgrade, and consumer and business confidence is starting to rise again,” the property expert said.
“This means that prospective buyers are going to need bigger household incomes to qualify for home loans in the coming months. As it is now, the average first-time buyer who pays a deposit requires a household after-tax income of at least R22,000 a month to qualify. This is almost 13% more than was needed a year ago, and most people are not getting salary increases of this magnitude in the current economic climate.”
Rademeyer pointed out that SA consumers have been warned that they will be paying more tax in 2017, while banks are likely to apply even stricter credit granting criteria in the light of the rising unemployment numbers and the increased risk of default.
Potential home buyers should not wait to buy
The clear message, he said, is that first-time buyers should not wait any longer to make the leap into home ownership, even if they have to downscale their aspirations and buy a smaller, less expensive home to start with. “And by the looks of things, many people have got it, or are being prompted to consider it as rentals continue to rise across the board”.
“Our figures show that while repeat buyers are still in the majority, the percentage of home loan applications submitted by first-time buyers has risen slightly in the past 12 months, although due to the decline in affordability the percentage of home loans granted to such buyers has remained constant at around 35% of the total,” Rademeyer said.
The BetterLife Home Loans statistics represent 25% of all residential mortgage bonds being registered in the Deeds Office.