Banks are starting to pull the purse strings tighter and it will affect your sales

The drop in the number of 100% home loans granted in March compared to January and February indicates that banks, concerned about high levels of household debt in the face of rising interest rates, are tightening up again on credit qualification requirements for prospective homebuyers.

‘Our latest statistics show that the percentage of home loans granted for 100% of the property purchase price fell to 37% in March, from 41,3% in January and 40,1% in February,’ says Shaun Rademeyer, CEO of BetterLife Home Loans. ‘By far the majority of these loans were granted in the affordable sector of the market.’

The biggest proportion (40%) of home loans approved over the past year were for purchases in the R500,000 to R1m price category, while a further 31% were for purchases over R1m and 24% for purchases in the R250,000 to R500,000 range.

BANKS ARE SHOWING CONCERN OVER LOW DISPOSABLE INCOME

‘The average household debt to disposable income ratio is still stuck at around 78% at a time when consumers are not only having to contend with rising interest rates and higher instalments on their debts, but also paying more for electricity, water, transport, food, education and health,’ says Rademeyer.

To add to banks’ concerns, he says, household disposable income growth has been steadily falling off, from a high of 4,6% in 2011 to just 1,4% last year – and it could stall altogether this year due to a further slowdown in economic growth.

AN INCREASE IN AVERAGE DEPOSITS

The average deposit for home loans has risen from around 19% of the property purchase price in January to the current 21%. ‘It is encouraging, however, that first-time buyers, who generally buy for less than R750,000, are only having to pay an average of around 13% to obtain a bond,’ says Rademeyer.

POSITIVE NEWS FOR YOUR CLIENTS

The average approved bond size for first-time buyers rose by more than 4% in the 12 months to end-March compared to the previous 12 months, while the average home price in this sector grew by only 3%.

First-time buyers accounted for more than 46% of all home loan applications over the past year and for almost a third (32%) of total approvals, so the market is still showing healthy demand and expansion that bodes well for the future, especially as these buyers move up the property ladder.

 

This story is from the Property Professional newsletter.

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