Advice and Opinion

Buying a home before approved bond is becoming difficult

Shaun Rademeyer, CEO of Betterbond.
Shaun Rademeyer, CEO of Betterbond.

The recent political and economic events that have rocked SA have also shaken the confidence of prospective home buyers, and this is reflected by a decline in the number of home loan applications made over the past few weeks.

According to the latest statistics* from BetterLife Home Loans, the number of applications received in March was 3,2% lower than the number received in March 2016, and most of the decline occurred after the recall and firing of Finance Minister Pravin Gordhan.

“This is especially disappointing,” says BetterLife Home Loans CEO Shaun Rademeyer, “in the light of the positive sentiment that was beginning to emerge in the market and had led to an encouraging increase in the percentage of first-time buyer applications since the start of the year”.

“Things were definitely looking up. The rand had gained value against all the major currencies, inflation was coming under control as food prices stabilized and the Reserve Bank was even considering an interest rate decrease towards the end of the year. Now there is concern that this will all be reversed as the implications of SA’s ‘junk status’ investment rating become apparent.”

However, he says, the SA property market has weathered worse conditions – “and fortunately many consumers are in a less exposed position financially than they were when recession hit in 2009, so we can expect a lower home loan default rate this time around”.

“We also expect home demand and sales to be buoyed by our growing population, and that will help to underpin house prices. Nevertheless, prices are bound to grow at a slower rate now, and that will in turn create more opportunities for prospective buyers and investors to get into the market.”

Indeed, says Rademeyer, a spike in buy-to-let purchases can be expected as investors who have been waiting for just the right moment start to buy up flats and townhouses to meet an anticipated increase in the demand for rental accommodation.

“On the other hand, now would actually be a great time for those who have spent the past few years paying off their debts, accumulating some savings and building up a good credit record to make their move and become home owners – even if they buy a less expensive property to give themselves room to cope with possible interest rate increases in the future”.

“And the reason for this is that it is going to become really much more difficult in six to 12 months’ time to obtain a home loan. The banks are going to become increasingly cautious about extending any kind of credit as the ratings downgrade starts to bite, and will apply loan qualification criteria even more strictly than they do now.”

As it is, he notes, the BetterLife statistics show, that the average approved bond size is currently R861 000, and has increased by 5,4% in the past 12 months, which is less than the rate of inflation. Among first-time buyers, the average bond currently being granted is R664 000, which is only 4,7% more than 12 months ago.

“And while buyers have been willing to pay bigger percentages of the purchase price as deposits, their response in many cases has been to ‘buy down’ in order to lower the actual amount of deposit cash that they need. In fact, our stats show that the average home purchase price has decreased in most income groups by between 2% and as much as 20% over the past 12 months. Only those with incomes of over R40 000 a month have been ‘buying up’ – and then not by much.”

Meanwhile, Rademeyer says, the statistics also make the clear case, once again, for enlisting the help of an experienced a reputable originator such as BetterLife Home Loans when applying for a bond.

“Without this assistance, the average consumer’s chance of being approved is currently only about one in three – whereas our approval ratio is still running at more than 73%.”

*The BetterLife Home Loans statistics represent 25% of all residential bonds being registered in the Deeds Office and are thus a reliable indicator of the state of South Africa’s residential property market.