select
|

‘Deposit drag’ keeps market on a choke-chain

Everyone in the property market knows that the current deposit requirements for home loan approval are among the biggest obstacles to increased home sales and faster property price growth.

But just what the extent of the deposit obstacles might be has not been quantified until now, with the release of new statistics by BetterBond, SA’s leading mortgage originator, which show how the home buying plans of many consumers are being delayed by many months due to rising deposit requirements.

The BetterBond figures, which represent a quarter of all residential mortgage bonds being registered in the Deeds Officeand include applications to, and bond grants from, all the major lending banks in SA, show that in the 12 months to end-February, homebuyers and owners in SA took up more than 80 000 new home loans, with more than 96% of those loans going towards the purchase of an existing home or the construction of a new one.

In addition, the average purchase price of the properties on which these bonds were granted rose 8,5% year-on-year to R867 000.

“But although these are healthy signs that the residential market is in recovery,” says BetterBond CEO Rudi Botha, “we believe it would be gaining momentum much faster if it were not for the fact that the size of the deposits that prospective homeowners are expected to pay is also increasing – and not in proportion to the rate of home price increases.”

For example, he says, the average value of the bonds granted in February, at some R745 000, was only 6,7% up on the average value in February 2012.“In other words, the bond value gain is not keeping up with the home price gain – and the discrepancy is explained by the increase in the average deposit required, which has gone from 16,1% of purchase price a year ago to 16,7%. This has boosted the actual cash requirement for the average deposit from about R129 000to around R145 000.”

Meanwhile, the average household income of bond applicants has actually remained static over the past year at around R46 000, so for those who do not have equity in an existing property and need to save a deposit, the time that would be needed to do so has gone from 28 months to 32 months (assuming they are able to save 10% of their income per month).

And this four-month delay appears to be the minimum extent of the ‘drag’ that current deposit requirements are having on the market.BetterBond statistics show that the average purchase price for first-time buyers has risen more than 16% to R677 922 in the past year, while the average deposit requirement has gone from 8,6% of purchase price to 10,1%.

During the same period, the average income of first-time buyers applying for home loans has only risen about 5,5%, with the result that the estimated time it would take the average first-time buyer to save up a deposit, at the rate of 10% of earnings per month, has gone from about 17 months to 23 months.

“It will of course take much longer for those who cannot save as much, or those who plan to buy higher priced properties,” notes Botha. “Our stats show that those seeking to buying a first home priced at between R1m and R1,5m would now need 54 months to save a deposit - as opposed to 44 months a year ago – a very long wait during which they are very likely to lose out on the interest rate and home price advantages of the current market.”


  Comment on this Article

  Please login to post comments

Post to my facebook wall
  
2000
Characters remaining


    Latest Property News
    • 19 Feb 2018
      Situated approximately halfway between Johannesburg and Pretoria, Midrand was established in 1981 and forms part of the City of Johannesburg Metropolitan Municipality. It has become one of the major business hubs in the country with major pharmaceutical, textile, telecommunication and motoring giants situated within its boundaries.
    • 19 Feb 2018
      The PayProp Rental Index Annual Review of 2017 shows that the rental market suffered from much volatility during the year. It kicked off with rental growth spiking in January with weighted year-on-year growth (YoY) growth peaking at 8.3% before dropping to 6.34% in July, dipping down to less than 5% in November and then experiencing a slight uptick at 5.75% in December.
    • 19 Feb 2018
      While most homes in cluster complexes, estates and other gated communities come with at least one garage or carport, residents would often like additional permanent parking or storage areas for things like trailers, bikes, boats and caravans.
    • 16 Feb 2018
      Whether you own a property in a sectional title complex or are looking to invest in one, the financial standing of the body corporate is the single most important thing that can affect your investment or your buying decision.
    • 15 Feb 2018
      One positive consequence of the financial crash in 2008 was the rise in consumerism, especially in the property market, where buyers have steadily become more knowledgeable and more value conscious.
    • 15 Feb 2018
      While most homeowners will take the agent’s commission into consideration when they are trying to determine what the will get out from the sale of their property, many often forget to factor in the other costs involved in a home sale, says Adrian Goslett, Regional Director and CEO of RE/MAX of Southern Africa.
    • 14 Feb 2018
      The forecast for the national rental market in 2018 remains a mixed bag of good news and bad news. Although rentals are expected to rise slowly as the challenges of home affordability and tighter lending criteria tighten their grip, it’s a double-edged sword as the market also will come under increasing pressure from factors like declining disposable income levels.
    • 14 Feb 2018
      While you may not have intended to place your home on the market, what do you do if you receive an unexpected offer on your home? In areas where demand outweighs the current supply of homes available to buyers, it is not unheard of to have buyers make offers on homes that aren’t on the market, says Adrian Goslett, Regional Director and CEO of RE/MAX of Southern Africa.
        
    X
    Subscribe to the MyProperty Newsletter

    Name  
    Last Name  
    Email Address  
    Email Frequency
    select
    X
    Share this Page

       
    For Sale Property
    Rental Property
    More Options
    About
    Connect with us
    FEEDBACK