It would be safe to say that the rising cost of living is impacting the daily lives of more and more South Africans. Everything is becoming more expensive, from the food we eat to the petrol we put in our cars and the electricity that we use to light our homes. While most of us are feeling the pinch, the additional costs we are forced to bear are beginning to affect how much we can spend on that new home.
In the days before the National Credit Act (NCA), the general rule of thumb was that a monthly bond repayment shouldn't exceed 30% of a buyers’ gross salary. This has changed quite dramatically since the introduction of the NCA where, in an effort to curb consumer debt, banks are now forced to consider all expenses before granting a bond.
According to the latest statistics from BetterBond Home Loans, home buyers in SA now need to earn a gross monthly income of around R30 000 to buy an average home costing some R952 000.
The BetterBond figures also show that 64% of buyers currently have to pay a deposit in order to secure a home loan, and that the average deposit required for a home priced at R952 000 is around R99 000 – or 10.4%.
“This puts the average loan required to buy such a home at R853 000, and the average monthly bond repayment at just over R7 400,” says BetterBond CEO, Shaun Rademeyer.
"In terms of the CPA, banks are obliged to try and stop consumers from becoming over-indebted. So when they consider a home loan application they must now also take into account your existing debt commitments and regular monthly expenses and see if there is enough disposable income left over to comfortably cover the monthly bond repayment.
“And because of the high household debt levels in this country and the continually rising cost of food, transport, utilities, healthcare and education, most prospective home buyers need to have higher earnings now in order to ensure that there will be a big enough amount ‘free and clear’ every month to cover their bond instalment.”
Things are a little easier for first-time buyers, says Rademeyer, with the average home price in this sector of the market having risen by just R27 000 in the past 12 months and deposit requirements having shrunk considerably to between about six and 10 percent.
“What is more, about two-thirds of the 100% bonds that are being granted are going to buyers at the affordable end of the market where most buyers tend to be first-timers.”
The banks’ still-strict lending criteria do not appear to have put much of a damper on the demand for home finance – or in fact on the banks’ willingness to lend to qualifying applicants.
The BetterBond statistics show a 3.75% year-on-year increase in the number of home loan applications received in November and, even more significantly, a 14% increase year-on-year in the number of applications formally granted (that is, approved and taken up by the borrowers).
The figures also reveal a 10.5% year-on-year drop in BetterBond’s initial decline rate (the percentage of applications declined by the first lending institution to which they are submitted) in November and a 15% year-on-year increase in the ratio of applications declined by one bank but approved by at least one other.
This took the group’s average approval ratio to 76% in November, which means that it is securing a bond approval for at least three out of every four of its applicants – and the statistics reveal that about 80% of these approvals are taken up by borrowers and converted to formal grants.