The average home price paid by first-time buyers has risen by R37,000 in the past 12 months, while the average home loan instalment has increased by almost R700 a month (R8,400 a year) as a result of three interest rate increases (from 9.5% to 10.5% per annum).
This is according to bond originator BetterLife Home Loans which represents 25% of South Africa’s mortgage origination business.
“This represents a clear decline in affordability for first-time buyers,” said Shaun Rademeyer, CEO of BetterLife Home Loans. “We believe potential first-time buyers should make a decision about buying property as soon as possible, because it is going to become increasingly difficult for them to become homeowners in the next 12 to 18 months, even if there are no further interest rate increases.
“Our latest statistics show that while the average first-time buyer home price has risen by 5.7% in the past 12 months, the average deposit paid by such buyers – as a percentage of the purchase price – has risen from 11.1% to 12.3%, taking the actual rand amount of the average deposit in this sector from R79,000 to R92,000.”
The average first-time buyer who pays a deposit now requires a household after-tax income of at least R22,000 a month to qualify, which is almost 13% more than was needed a year ago.
FNB’s household and property sector strategist, John Loos, however, reported that wage increases were likely to be “contained” this year due to predicted 1% economic growth for 2017.
“It seems like a significant constraint on the consumer to come,” said Loos, noting that the growth rate for real household disposable income for 2017 would translate into further negative growth. “The implications of negative per capita household disposable income growth can go beyond merely posing spending constraints for the household sector to further fuelling social tensions and political volatility. This can be significant in a year which will end with the ruling ANC’s elective conference. And while it is virtually impossible to predict political events that may unfold, the build up to the conference through the year will no doubt be watched closely by the investor community, and any major negative political events can influence investor confidence and the rand, posing risks to any economic forecast.”
South African consumers have been warned that they will be paying more tax in 2017, while banks are likely to apply even stricter credit granting criteria in the light of the rising unemployment numbers and the increased risk of default, said Rademeyer.
Loos concurred, saying a 1% real economic growth rate did not guarantee a 1% real disposable income growth rate.
“The weak economy of recent years has taken its toll on government tax revenue, and the Minister of Finance is looking for areas to boost revenues,” said Loos. “Personal income tax has been a popular source of additional revenue in recent years, with Treasury effectively raising personal tax rates through not fully adjusting tax brackets for inflation bracket creep. And so, whereas in 2004 when personal and wealth taxes on households were estimated at only 10.9% of household income, by 2015 this percentage had risen to 15% (from 14.4% in 2014); and we would expect further increase in the 2016 numbers and in 2017.”
Rademeyer added that BetterLife’s figures showed that while repeat buyers were still in the majority, the percentage of home loan applications submitted by first-time buyers had risen slightly in the past 12 months.
“Although due to the decline in affordability the percentage of home loans granted to such buyers has remained constant at around 35% of the total,” Rademeyer said.