More bonds being granted, but banks still strict

The average home price showed a year-on-year gain of 9% in April to R893 000, according to the latest statistics from BetterBond, South Africa’s biggest mortgage originator.
“This reflects the continued upward trend of prices over the past year, despite monthly fluctuations,” says BetterBond CEO Rudi Botha, who notes that this growth has largely been driven by an increase in demand, as evidenced by the steady climb in the number of home loan applications being submitted each month. This number is now 9,6% higher, on average, than it was 12 months ago.
“In addition, the monthly home loan approval rate now stands at 69% of those applications, compared with 61% 12 months ago, and what this means, given the higher number of applications, is that the banks are approving more bonds than they were at this time last year,” he says.
“Indeed, this tallies with the latest available Reserve Bank statistics, which show a 1,6% year-on-year growth in mortgage advances in February, mostly as a result of higher demand in the residential property sector.”
However, the BetterBond statistics, which represent 25% 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, also show that the pattern of lending has remained much the same since August last year, with 30% to 35% of loans granted each month being for the full home purchase price (100% loans) and the remainder being spread fairly consistently over the other loan-to-value categories. (See Graph 1).
“This indicates,” says Botha, “that while banks are now slowly expanding their home loan ‘books’ again, there has been no significant change in their lending criteria since the last interest rate drop in July 2012. The great majority of homebuyers are required to pay a deposit in order to secure a home loan, with the average deposit being 17% of purchase price - the same as it was 12 months ago.”
The statistics also show a consistent pattern of higher percentage deposits being required for higher priced homes. For example, the average deposit required for homes costing between R500 000 and R1m, which is where the bulk of purchasing activity (42%) is taking place, has remained within a narrow range of 12% to14,5% of purchase price for the past 12 months.
By contrast, buyers in the R250 000 to R500 000 price category are usually only required to pay a deposit of around 7,5%, while those purchasing for more than R2,5m generally need to find around 35% of the price in cash.(See Graph 2).
Botha also says that no major changes to this scenario are expected at least until the end of this year, barring any sudden change in interest rates. “Despite the current low rates, the increase in demand for property – and in home loan lending – is likely to remain muted in the coming months as consumers struggle to cope with significant cost-of-living increases and the banks worry about very high household debt levels that limit the ability of borrowers to make bond repayments.”

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