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Betterbond figures show improvement in home loan approval rate
The extent of the improvement in the residential property market over the past two years is clearly indicated in the latest statistics from mortgage originator BetterBond, which show that home loan approval rate has risen from 61 percent in March 2011 to 69 percent last month.
During the same period, the average home purchase price paid by BetterBond clients has fluctuated, hitting a low of R780 000 last January and spiking at R960 000 last August.
But it has generally also shown an upward trend, to reach R905 000 last month, compared with R786 000 in March 2011 (a 15 percent increase).
However, BetterBond chief executive Rudi Botha notes that the average deposit percentage required by lenders has varied little over the past two years, with the result that the average home loan amount approved has risen from R700 000 in March 2011 to R738 000 last month.
"Obviously the banks are feeling increasingly comfortable about lending to the residential market again as the balance of supply and demand improves.
"In addition, most prospective borrowers now have much better financial profiles than was the case two and three years ago."
The BetterBond 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, he says.
These statistics show that though first-time buyers continue to account for a large percentage of home loan applications, that percentage has declined from 48 percent in March 2011 to 39 percent in March last year and 36 percent last month.
"It's clearly getting more difficult for first-time buyers to enter the market.
"Although the average purchase price in this sector has risen some 7.5 percent in the past two years, the average home loan amount approved has only increased by about 6 percent, indicating that firsttime buyers need bigger cash deposits to secure loans," Botha says.
"And because salaries have not been rising as fast as the cost of major budget items like food, transport and utilities, it is becoming more difficult for prospective buyers to save these amounts.
"In addition, because they are often either still living with their parents or renting, firsttime buyers have more flexibility when it comes to deciding when to buy, and they will often back off from the market when economic growth drops - as it has in the past year - and business confidence and employment prospects start to look shaky," Botha says.
On the other hand, the steady if slow increase in middle-bracket home prices in the past two years has meant that repeat buyers have now often built up considerable equity in their existing homes, which could go a long way towards covering the deposit required to buy their next property.
"Such buyers are the ones best placed at the moment to make the most of the historically low interest rates.
"Indeed, if they have sound credit records and sufficient income as well as substantial deposits, they can now often upgrade to better properties for not much more a month than they are paying for their current homes," Botha says.
Weekend Argus (Sunday Edition)