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First-time home buyers get ‘more bang for their buck’ with lower deposits

09 Dec 2019

Competition among the banks for new home loan business is not only making it easier for first-time buyers to obtain finance, but also encouraging them to buy more expensive properties.

There is a significant increase in the number of bonds being granted for the full purchase price of the property, with most of these no-deposit loans going to first-time buyers for the purchase of affordable homes.

It has also resulted in the number of home loan approvals showing a 17.2% increase over the past 12 months, and the number of bonds being granted rising 20.3% to their highest levels in more than 10 years. 

So says Carl Coetzee, CEO of SA’s foremost home loan originator BetterBond, who notes that while home prices overall have only risen by an average of 1.9% in the past 12 months, those in the first-time buyer sector have risen by an average of 6.4%.

“As a result, the average price paid by first-time buyers in the 12 months to end-October - R982 000 - was just R188 000 less than the average price for the market as a whole during this period, which was R1.17 million.”

This differential, he notes, has in fact been declining steadily since 2017, when it was R251 000, and the trend is partly due to SA’s rapid rate of new household formation, urbanisation and the continuous expansion of the pool of potential buyers.

In the past year, some banks have also re-introduced home loans that cover the price of the property plus the additional costs of purchase

“But, while that growth is behind rising demand and the fact that first-time buyers now persistently account for over 50% of all new home loan applications, their increasing ability to actually achieve homeownership has really been made possible by the competition among banks for new home loan business and their greater willingness to grant low-deposit and full-price loans.”

The latest BetterBond statistics show that the percentage of home loans that are granted to first-time buyers has risen from around 30% at the end of 2017 to 39% currently.

They also show that over the past 12 months, the average deposits paid in the R500 000 to R1 milliom and R1 million to R1.5 million home price categories most favoured by first-time buyers have fallen from 7.29% to 6.49% of the purchase price, and 2.98% to 2.63% of the purchase price, respectively.

In addition, Coetzee notes, there has been a significant increase in the number of bonds being granted for the full purchase price of the property, with most of these no-deposit loans going to first-time buyers for the purchase of affordable homes.

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“In the past year, some banks have also re-introduced home loans that cover the price of the property plus the additional costs of purchase such as bond registration, transfer and legal fees, and this has further opened up the market for first-time buyers, who typically have difficulty accumulating sufficient cash to cover these costs.

“However, while such loans do make it easier to achieve homeownership, we always encourage buyers to pay a deposit and borrow less than the price of their home when possible, because this will lower their monthly home loan repayments and save them a significant amount of interest over the lifetime of the loan.”

What is more, he says, those who apply for their loans through reputable originators like BetterBond stand to make even greater savings. “Our multi-lender application process ensures that our clients are offered the very best interest rate applicable to their individual financial circumstances, and a concession of even 0.5% can make a big difference, not only to the current affordability of the property, but to its cumulative cost over the lifetime of the loan.

Calculate what you'll save if you get 0.5% less on your home loan interest rate

“On a R900 000 loan, for example, it would save the buyer a further R71 000 worth of interest – which shows once again why prospective buyers really should seek our advice on home financing before they even start looking for properties to buy.”

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