Mortgage originator, BetterLife Home Loans, reported that most buyers require a bigger percentage of the purchase price as a deposit than they did a year ago. This is according to Shaun Rademeyer, CEO of BetterLife Home Loans, who said that while his company was still securing 75% of the home loan applications it received, it has noticed that banks are applying strict affordability criteria in terms of the National Credit Act.
“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,” he said, noting that constrained household budgets and insufficient disposable income have seen banks restricting the size of loans they make.
“Indeed, as the table below shows, 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.”
Average deposit required per price category
|Purchase price||Ave deposit 12-months to end-May 2016||Maximum % of purchase price|
|R0 to R250k||R17,205||–|
|R250k to R500k||R30,638||12,3%|
|R500k to R1m||R93,371||18,7%|
|R1m to R1,5m||R222,353||22,2%|
|R1,5m to R2,5m||R432,277||28,8%|
Source: BetterLife Home Loans
Rademeyer did not expect the trend of increased deposit requirements changing for some time which meant those considering buying buying should prioritise debt repayments and savings.
“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,” he said. “The BetterLife Home Loans statistics show that in May the average first-time buyer home price was R724,000, and the average percentage of purchase price required was just R86,000 (12%) of the purchase price.
“By contrast, the average home price for repeat buyers reached R1,04m, well up from the R972,000 recorded a year before, and this rise combined with the increased deposit requirements means that these buyers are currently required to have around R218,000 (21% of the purchase price) available in cash before applying for a home loan, in addition to the funds required to cover transfer duty, bond registration and legal costs.”
The BetterLife Home Loans statistics represent 25% of all residential mortgage bonds being registered in the deeds office
Photo: This Upper Claremont home is on the market for R8,5m through Lew Geffen Sotheby’s.