Properties less affordable for first-time buyers

The average price being paid by first-time home buyers has increased by R145 000 in the past 12 months, and the average home loan repayment by almost R1 000 a month, despite the interest rate cut in July.

"This means fewer buyers can afford mortgage repayments and indicates that the window of opportunity for them to become home owners is closing," says Rudi Botha, chief executive of BetterBond mortgage originator.

BetterBond's 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 South Africa.

The statistics show that the average percentage of purchase price required by first time buyers as a deposit has remained at about 12 percent for the past year, he says. But since the average price has risen, so has the actual rand amount of the deposit, which now stands at about R81 000, compared with R64 000 i n November 2011.

The BetterBond statistics show that the average home price currently being paid by all buyers is R916 000, compared with R834 000 in November 2011, with the average deposit required being 18 percent of the purchase price.

"Higher prices, of course, mean that buyers also need bigger home loans - and higher household incomes to qualify. These days, the average first time buyer requires a household income of about R17 000 a month, compared with about 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 about 40 percent of all mortgage applications, but the percentage of loans being granted to such buyers has dropped from 39 percent in November 2011 to 36 percent at present, with the rest going to repeat buyers and borrowers who are improving their existing homes.

Botha says the overall level of mortgage lending is still only about 35 percent of what it was at the height of the last boom - and is not likely to increase until at least 2014.

"To qualify for home loans, prospective buyers now need 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 deposits. Only 21 percent of the home loans now being granted are for 100 percent of the purchase price, and those who get them usually have to agree to pay a premium interest rate as high as three or 4 percent above prime, which once again makes homes less affordable and can add substantially to the ultimate cost of a home."

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