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Mortgage affordability increasingly out of reach

The average purchasing price for a house is growing faster than the average income of home buyers, according the Standard Bank’s April House Price Index (HPI), adding to the deterioration of mortgage affordability of the average South African.

In April the average price of homes applied for with Standard Bank was R1,28m, an increase from the average  of R991,860 in Q1 2016. At the same time the average income of applicants increased to R54,358 per month from R53,015 per month in Q1 2016.

Heaviest load for low-income earnersAnts carrying heavy load

The price-to-income ratio, which gives a multiple of the purchase price relative to the buyer’s income, for the average applicant had increased from 1:56 to 1:58, indicating reduced affordability as the average purchase price grew faster than the average income.

Furthermore, Standard Bank found that buyers falling into lower income groups (earning less than R16,500 pm) have much higher price-to-income ratio compared to their middle income (R16,500 pm to R123,400 pm) and upper income (R123,400+ pm) counterparts. On average, in April lower income earners sought to purchase a house 2.64 times their annual income, compared to middle income and upper income earners who sought to purchase properties in multiples of 1.71 and 1.00 times their annual income respectively.

Two’s a powerhouseTwo dogs working together

Standard Bank’s most recent HPI also indicated that joint applicants (bond applications assessed in terms of total household income) are better off, despite the fact that joint account holders prefer higher priced homes. Compared to single applicants the price-to-income ratio is lower (1.47 versus 1.67) which indicates joint applicants’ superior mortgage affordability and increased purchasing power.

Ooba, in its Oobarometer, reports that according to April property statistics, average house price inflation has shown negative real growth against the current inflation rate of 6.3%, with year-on-year growth of 2.6%.

Your rent can help you buy your home

According to Rhys Dyer, CEO of Ooba, the slowing growth in property prices is a symptom of diminishing residential property demand. “Consumer confidence is waning in the face of South Africa’s poor economic growth, high inflationary pressures and increasingly expensive credit due to rising interest rates and higher funding costs for banks.” Dyer adds that statistics show banks have increased their average pricing from 0.27% above prime in April 2015, to 0.43% above prime in April 2016, impacting further on applicants’ affordability. This is a possible explanation for why the average age of buyers has increased by one year to 38, while the average age of first time buyers also increased to 34.

Pricey credit weighs on first-timersNervous first kiss

According to Dyer market participation of first time buyers has also slowed, from 54% of all Ooba applicants six months ago being first time buyers to 51% currently. Increasingly expensive credit, coupled with consumer affordability constraints, has naturally contributed towards bond approval rates being down 3.9% year-on-year. This is the case even with an emerging trend of home buyers entering the market with some form of deposit (The ratio of homebuyers applying for finance without access to a deposit was 36% in April and 37% in March, compared to 48% in April 2015.)

Dyer suggests that the prospective home buyer’s chances improve when employing the services of a bond originator while Standard Bank statistics suggests that those doing joint applications are more likely to be successful. Bottom line is that bond approvals are becoming increasingly difficult to come by, therefore planning and education is a highly recommended route for successful applicants.



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