We all know that one of the most stressful aspects associated with buying a home is raising bond finance. In addition to scrutinising the credit records of every applicant, querying the value of the property concerned and asking for extensive documentation, banks have also upped the ante as far as the amount required for a deposit is concerned.
The deposit situation is once again in the media spotlight as although it is reported that more clients are receiving 100 percent bonds, those who don’t are required to pay a higher deposit than was previously required.
According to BetterBond, South Africa’s biggest mortgage originator which currently secures finance for 25 percent of all bonds registered at the Deeds Office, the number of 100 percent bonds being granted rose to 41 percent in June, compared to 37 percent in May. However, the average percentage of the purchase price for those who did not qualify for a 100 percent loan rose from 17.1 percent to 19.1 percent in the same month.
“This coincided with an across-the-board increase in the prices being paid by homebuyers,” says BetterBond CEO, Rudi Botha. “It also supports our previous observation that there is a deposit ‘sliding scale’ – that is, the higher the home price, the higher the deposit percentage is likely to be.”
He notes that in June, the average price paid for a home was R857 000, well up from the R838 000 recorded in May and the R843 000 achieved in April. This increase, combined with the higher percentage deposit required, means that the average buyer who did not secure a 100 percent loan in June was required to pay a deposit of some R164 000, compared to about R143 000 the month before.
It appears that those investing in lower priced properties, first time buyers in particular, did not have to hand over as much of their hard-earned cash as those buying in a higher price bracket.
BetterBond’s statistics reveal that the average price paid by first time home buyers in June was R615 000, compared to R597 000 in May and the average percentage of the purchase price required as a deposit by such buyers who did not secure 100 percent loans rose to 11,5 percent, from 10,3 percent in May. Effectively, this means that the average first time buyer only needed about R71 000 for a deposit. Encouragingly, the statistics also show that the majority of 100 percent bonds are being awarded to buyers at the lower end of the price scale.
Although there are many who would deem this unfair, financially it makes perfect sense. Homeowners who manage their affairs prudently and buy a property which will appreciate in value are theoretically set for life. The profit made from the sale of one property should be more than adequate to ensure a healthy deposit for the new, perhaps more expensive, home. In other words, the longer a homeowner has owned a property, the better and stronger his financial position should be.
We all know and understand the importance of stepping onto the first rung of the property ladder. Simply put, in most cases it will lead to bigger and better opportunities in the future. The good news is that first time buyers currently account for 41 percent of the total number of loan applications, and make up about 36 percent of all bonds granted.