Homebuyers should be saving as deposit requirements raised

BY SHAUN RADEMEYER

Statistics show that as yet we are still securing approvals for 75 % of the home loan applications submitted, and that the banks are still keen to grant home loans. However, they are applying strict affordability criteria in terms of the National Credit Act, with the result that most buyers now require a bigger percentage of the purchase price as a deposit than they did a year ago.

The main reason for this change is the steady rise in interest rates since July last year, which has pushed up the monthly repayments on all kinds of debt and, combined with rising inflation, has put many household budgets under pressure and negatively affected housing affordability.

After paying all their monthly bills, many households just don’ t have enough disposable income left at the moment to comfortably afford a bond repayment, and in such circumstances, the banks have no choice but to restrict the size of loans they make – with the result that prospective buyers must either purchase less expensive properties or put down bigger deposits.

There is a‘ sliding scale’ of deposit payments according to property price, with buyers who fall into the R250 000 to R500 000 purchase price category currently paying an average of around R31 000, for example, and those who fall into the R500 000 to R1m category paying an average of around R93 000.

What is more, given the mounting pressures on SA’ s lending institutions to lower their risks and increase their reserves, it is not expected that the trend of increasing deposit requirements will change for some time, so those who are currently on the fence about buying property should prioritise debt repayments and savings to enable them to make a purchase as soon as possible.

And first-time buyers may actually find it somewhat easier to take this step than others, purely because the deposit criteria in the price categories they favour are relatively low. In May, the average first-time buyer home price was R724 000, and the average percentage of purchase price required was just R86 000 or 12 % of the purchase price.

Consequently, first-time purchases as a percentage of the total are not expected to fall far from the current 46 % level in the coming months. We do, however, foresee that the average home price may stall and even decline as the higher deposit requirements at the top end of the market cause many repeat buyers not to upgrade but to downsize and opt for smaller and less expensive homes.

26 SEPTEMBER 2016 SA Real Estate Investor www. reimag. co. za