“This represents a substantial decline in affordability for such buyers and indicates that the window of opportunity for them to become homeowners is closing,” says Rudi Botha, CEO of BetterBond, SA’s biggest mortgage originator, whose monthly statistics 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.*
The statistics show that the average percentage of purchase price required by first-time buyers as a deposit has remained at around 12% for the past year, he notes, but since the average price has risen, so has the actual rand amount of the deposit, which now stands at some R81 000, compared to R64 000 in November 2011.
“Higher prices of course mean that buyers also need bigger home loans – and higher household incomes in order to qualify. These days the average first-time buyer requires a household income of around R17 000 a month, compared to around R14 000 last year. But even that might not be enough. The rising costs of food, transport, electricity and other necessities have really eaten into household disposable incomes in the past year, leaving many aspirant buyers without sufficient ‘spare’ cash, in terms of the National Credit Act, to afford a monthly home loan repayment.”
As yet, demand has not slowed, with first-time buyers still accounting for around 40% of all mortgage applications, but the percentage of loans being granted to such buyers has dropped from 39% in November 2011 to 36% currently (with the rest going to repeat buyers and borrowers who are improving their existing homes).
What is more, Botha says, the overall level of mortgage lending is still only about 35% of what it was at the height of the last boom – and not likely to increase until at least 2014. “And now there is really only one way for prospective buyers to counter declining affordability, which is to lower their household debt levels – by cutting spending to the bone and paying off high-interest rate store and credit card balances, vehicle loans and above all, any personal loans, as soon as possible.
"Once this is done, any spare income should really be diverted to saving hard for a deposit. As it is, only 21% of the homeloans now beinggranted are for 100% of the purchase price, and those who obtain them usually have to agree to pay a premium interest rate as high as three or four percent above prime, which once again cuts into affordability and can add substantially to the ultimate cost of their home.”
*The BetterBond statistics show that the average home price currently being paid by all buyers is R916 000, compared to R834 000 in November 2011, with the average deposit required being 18% of purchase price.