Continued pressures on qualifying for home loans

Continued tight mortgage lending, high household debt and slow economic growth are constricting sales volumes says Seeff chairman, Samuel Seeff. Our agents report that demand for residential property is up this year, show day attendance and advertising response is up by about 20% and more people are willing to buy, but many would-be buyers are still having difficulty qualifying for home loans.

While the low interest rate seems to have spurred a willingness to buy, especially in sub R1,5 million market, about 67% of home buyers are reliant on mortgage finance. Sales volumes are a function of lending and while the demand is there, it is not filtering through to the market in terms of the banks' propensity to grant home loans, he says.

At the height of the market (between 2004 and 2007), it was not unusual to see monthly transaction volumes in the upper thirty and forty thousands, says Seeff. This slumped by more than 50% to under 16,500 in 2009 and has since improved by 20% to around 20,000 transfers per month. By contrast, the number of bonds registered annually since 2009 remains at about half of what it was during the peak. We would have liked to have seen a corresponding improvement in home loan approvals by now, he adds.

For the market to normalise, Seeff believes that monthly transaction volumes should be at between 25,000 and 30,000 transfers per month.

With house prices remaining relatively flat, not only buyers, but the banks too should be encouraged to find real value in the market right now. There is security in bricks and mortar, especially now that homes are more correctly valued. Seeff believes that this, together with the continued deposit requirements, should serve as encouragement for the banks.

Home ownership creates security, stability and a strong economic foundation, yet only 58,1% (according to Statistics SA General Household Survey, 2010) of South Africans own their own homes; only 5% more than in 2002. By contrast, home ownership in Brazil has grown to about 75% in just ten years. One of the aspects to encourage home ownership, was a lengthening of the loan repayment period to 30 years from the norm of 20 years. However, the greatest factor has been strong economic growth over a sustained period while ours appears to be petering out in relation to other African countries.

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