First-time buyers, you need a deposit of at least 12%
According to Betterlife Home Loans statistics, which is representative of 25% of all residential mortgage bonds being registered at the Deeds Office, first time buying activity suggest a renewed confidence in the economy
The average price paid by first-time homebuyers rose by 5.8% to R739,000 in the 12-months ending September 2016.
Shaun Rademeyer, CEO of BetterLife HomeLoans, says that this increase in price is due to an uptick in demand. “Our figures show year-on-year growth of 0.1% at end-September in the percentage of home loan applications made by first-time buyers, compared to the 3.9% decrease in the previous 12 months,” says Rademeyer. “This suggests that demand has risen quite strongly even though most households are running on a very tight budget.
Along with the increase in average home prices, the bond originator reports an increase in the percentage of the purchasing price that first-time buyers are able to pay in cash as a deposit. The average cash deposit by first-time buyers has increased from 11% in the previous period to 12.2% for the year ending September 2016.
First-time buyers are saving more to make up for the loan shortfall
Rademeyer believes that this is a clear indication of the determination among young South Africans to become homeowners. The fact that the 4.3% increase in the average home loan amount granted to first-time buyers is falling short of the 5.8% increase in the average home price has meant that already cash-strapped consumers have had to budget very carefully to save for a cash deposit averaging well above 10% of the purchasing price. When considering the fact that first-time buyers, whose salary increases have lagged general price increases for some time now, are saving about R90,000 to put down as a deposit, the resolve to enter the property market becomes clear.
According to Rademeyer these trends suggest a growing confidence in the economy and the future of South Africa “Property sales are extremely sensitive to negative sentiment,” explains Rademeyer. “First-time buying always drops off markedly when there is a lack of confidence. Potential buyers would rather just carry on renting.”
He adds that the increase in first-time buying also acts as an impetus for new housing developments and thus job creation, and creates a knock-on effect when these buyers decide to upgrade and become repeat buyers.
Although the fact that more consumers across the buying spectrum are willing to put up increasing sums of their cash savings as a deposit indicates confidence and optimism, Rademeyer cautions that lenders are becoming more stringent in light of the current low economic growth scenario. This makes it harder for potential buyers to get bond approval, especially if the lender considers your proposed deposit to be insufficient.