Commercial banks’ variable mortgage interest rates were at 12,5% at the end of 2006 after lending rates had been increased by a total of 200 basis points since June last year, according to Absa’s Residential Property Perspective First Quarter 2007, recently released in Johannesburg.
Based on an average house price of R849 388 in the middle segment of the market in the fourth quarter of 2006, the monthly repayment on a new mortgage (100% over a 20-year repayment period at a variable mortgage rate averaging 12,2%) amounted to R9 451.
In the same quarter of 2005, the comparable repayment was R7 443, calculated at an average house price of R745 514 and a mortgage rate of 10,5% in that quarter.
The difference of R2 008 between these monthly repayments can be ascribed to house prices being 13,9% higher in the past quarter than they were a year ago, whereas the mortgage rate was 170 basis points higher than in the fourth quarter of 2005.
In view of the abovementioned house price and interest rate developments, the gross monthly household income required to qualify for a 100% mortgage on a R849 388 house for which the monthly repayment does not exceed 30% of income, was R31 504 in the final quarter of last year. This was 27% higher than a year ago, when a monthly household income of R24 810 was required to qualify for a 100% mortgage on a R745 514 house.
House price growth was on a declining trend during the course of last year, so the steady increase in interest rates since mid-2006 was the largest contributor to the increase in the year-on-year growth in the required income from 12,9% in the first quarter to 27% in the fourth quarter.
The house price-to-remuneration ratio as well as the mortgage repayment-to-remuneration ratio increased further in the second quarter of last year (most recent remuneration data available). An increase in these two variables implies that house prices and mortgage repayments have increased at a faster rate than remuneration and that housing has, in effect, become less affordable.