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Almost half of mortgages granted are 100% to 109% loan to purchase price

Parkland and promenade that weaves through apartment development at Steyn City NORMAL RESMortgage lenders still provide “100% loans”, and they are more common than people believe.

This is according to John Loos, FNB household and property sector strategist, who studied deeds office data for transactions undertaken by individuals and looked at loan-to-purchase price (LTP) on each transaction identified. Each loan was placed within an LTP band, and then the number of loans in each LTP band and their percentage of the total number of loans was estimated.

“We find that the 100% to 109% LTP band (those homes where the bond registered is between 100% and 109% of the home transaction value), were estimated at 41.5% of the total number of bonds identified in Q2 2016,” said Loos. “This percentage is slightly lower than the 43.1% multi-year high reached in Q4 2015.”

FNB studied the absolute number of transactions falling in the 100% to 109% LTP range and found that in Q1 2016 there were 9,951 bonded transactions by individuals in the 100% to 109% LTP range – more than double the 4,117 low of Q3 2009, but well down on the 33,825 high reached in Q3 2006.

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The bank also identified which price ranges were most heavily dependent on 100%+ LTP loans.

“We have split the market into quintiles based on the value of transactions by individuals,” said Loos. “The top 20% of transactions by value are labelled ‘quintile 1’, while the bottom 20% of transactions by value are labelled ‘quintile 5’.

“The average transaction values, as at Q2 2016, per quintile, were R2,442m in the case of quintile 1, R1,057m in quintile 2, R658,922 in quintile 3, R358,934 in quintile 4 and R84,376 in quintile 5. Examining the distribution of LTP ratios by price quintiles, we find that quintile 4 is most highly dependent on 100% to 109% loans, with the share of these loans making up 49.5% of its total mortgage loans to individuals in Q2. Quintile 3 is next with 42.2% of its loans in the 100% to 109% LTP bracket.

“The lowest dependence on 100%+ loans is in the most affluent quintile 1, where a significantly lower 22.1% of this quintile’s bonds registered fall into the 100% to 109% LTP category.”

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FNB estimated that the average LTP ratios in the 18- to 30-year age groups were highest of age cohorts, at 92% on all bonded transactions. The average then slid steadily to 91% LTP in the 30- to 35-age group, 89% in the 35- to 40-year group, and ending at 74% LTP for the 55+ age group.

“Finally, what are the average bond values of the different age cohorts? Given their financial limitations early in their careers, it is not surprising to find that the lowest average estimated bond value in the 18- to 25-year age group, at R686,380, and the 25- to 30-year age group at R818,656,” said Loos. “The average bond value makes its way higher to peak at R1,084m for the 45- to 50-year age group before tapering off in the older age groups.

“In short, according to our deeds data estimates, 100%+ mortgage loans are fairly common these days. Though not quite being the 50%+ majority, they amount to an estimated 41.5% of total bonds taken by individuals, with higher percentages in the more affordable segments of the market. The full perspective is gained when examining the total market volumes, though, and at present these volumes appear fairly ‘normal’, noticeably higher than the 2009 low point, but far down from the 2006 boom time peak.”

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