15 Nov 2013
BetterBond Home Loans data reveals an increase in the percentage of home loan applicants – a figure sitting at 5.06 percent in the 12 months to end of October compared with the previous 12 months, while the total value of those applications showed a 12.26 percent year-on-year (y/y) increase.
Shaun Rademeyer, BetterBond chief executive, says the total value of home loans formally granted through the originator showed a y/y increase of 23.85 percent at the end of October – by contrast with the 2.7 percent y/y growth in overall household mortgage balances reported by the Reserve Bank at the end of the third quarter.
“This shows that there has been a healthy increase in the demand for property over the past year, in spite of all the cost-of-living increases that consumers have had to contend with, and the fact that home prices have been rising,” he says.
Meanwhile, ooba’s September data reveals that 53.7 percent of ooba’s total bond applications were from first-time buyers (53.9 percent in 2012) and 2.6 percent higher month-on-month (m/m) with first-time buyers on average reportedly putting down 11 percent in deposits on their new homes.
The mortgage originator says the first-time buyer market continues to be robust and lenders are giving this market reasonable access to credit.
Importantly, however, statistics continue to show the bigger your deposit, the greater your chances of securing home finance and a better interest rate, according to ooba.
Loan applications declined
At 47.2 percent, the Initial Decline Ratio, which shows the proportion of applications rejected by the first lender the application is submitted to, is down y/y by 0.8 percent and m/m by 1.2 percent while the Ratio of Applications Declined by One Lender, Granted by Another has increased by 1.5 percent y/y and 0.1 percent m/m to 28.9 percent.
In September, ooba’s bank approval rate was 66.4 percent from 65.5 percent in August and 65.2 percent in September 2012.
BetterBond’s initial decline rate showed a y/y drop of almost 9 percent by the end of October to 38 percent of applications submitted.
The ratio of applications declined by one bank but approved by at least one other showed a y/y increase of 18 percent in the same period to a 9.5 percent y/y increase in BetterBond’s overall approval ratio.
“In other words, we have been able to secure a bond for three out of every four applicants that have come to us in the past 12 months – and in real terms, we have been able to help more than 25 000 SA families fulfil their dreams of homeownership,” says Rademeyer.
Banks and lending
According to the mortgage originators, the approval rate on loan applications proves that using a bond originator gives one a better chance of obtaining a home loan in the shortest possible time.
They also point to the fact that the quality of applications has improved with BetterBond noting that they are able to assist applicants to gather all required supporting documentation before submitting an application to the bank.
That said, interest rates are currently at historical lows which means home loan finance is affordable and of course we are told it is a buyer’s market.
It very well may be so for many, but as Adrian Goslett, chief executive officer of RE/MAX of Southern Africa notes, while conditions in the property market are prime for buying, many would-be homeowners, especially the younger generation are struggling to take advantage of these opportunities.
Challenges facing buyers
1. High debt levels
Goslett says although favourable interest rates have been prevalent in the market for the past few years, high debt-to-income ratios have held many potential home buyers back from realising their goal of owning a property.
He points out that repaying debt off first is necessary to ensure ease of entering the property market and improving affordability levels as dictated by the banks.
Prime rates are likely to start to increase in 2014 putting further pressure on consumers who are already struggling to service their current outstanding loans.
“Affordability is a key factor when it comes to obtaining the necessary finance for buying property and the fact is that many consumers today simply don’t have the affordability ratios required by the banks.”
He says this is largely due to the continually increasing cost of living and the exceptionally high levels of debt that South African consumers have.
According to the South African Reserve Bank’s quarterly bulletin, the amount of debt owed by consumers as part of their income was 75.6 percent and this translates to the fact that for every R1 000 consumers earn, around R750 is going towards paying back debt, explains Goslett.
3. Competitive job market
Some home buyers are affected by the highly competitive job market.
“While a large number of younger generation consumers have studied, they now face the daunting task of finding employment in a job market where one in every four South Africans is unemployed.”
Economists predict that the economy will need to experience an annual growth of around 7 percent in order to accommodate the number of students that are currently entering the job market each year.
Perhaps obvious in many instances, without income one cannot buy property.
Goslett says due to the fact that economic growth has seen a tapering since 2010, employment growth has also slowed down, which will continue to affect the number of first-time buyers entering the market.
John Loos, FNB household and property sector strategist, says many younger consumers are delaying their departure from their parents’ homes and are holding out for more favourable economic times.
He notes that access to affordable credit is crucial for many credit-dependent young home buyers who have yet to accumulate savings.
Affordability of credit is partly determined by income, thus implying that employment creation is very important in driving this access to credit.
“Until employment levels increase, it will be consumers over the age of 30 years old who are more established in their careers who will continue to be the driving force behind the property market and this demographic generally has the necessary financial stability and means to save the deposit amounts required by banks, to take advantage of the current market conditions,” he says.
Goslett urges persistent younger consumers who are able to overcome the challenges they face and gain momentum in their careers to avoid the debt trap and save wherever possible to ensure that their dream of homeownership becomes a reality.- Denise Mhlanga
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