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Poor buyers battle to get home loans

01 Dec 2011

In the Western Cape, many potential home buyers are reportedly battling to get home loans with 40 percent qualifying for home loans to buy property.

According to Rawson Properties, with only 40 percent of people qualifying for mortgage finance, renting is on the increase in Parow Valley, Ravensmead, Elsies River, Cravenby, Matroosfontein, Bonteheuwel, Valhalla Park, Montana, Montevideo, Charlesville and Bishop Lavis.

According to Rawson Properties, with only 40 percent of people qualifying for mortgage finance, renting is on the increase in Parow Valley, Ravensmead, Elsies River, Cravenby, Matroosfontein, Bonteheuwel, Valhalla Park, Montana, Montevideo, Charlesville and Bishop Lavis. 

Alvin Suklall, Rawson Properties franchisee for Parow Valley and surrounding areas says the statements made by Rawson Properties directors in the past few years to the effect that people at the lower end of the housing market are those hardest hit by the National Credit Act when they apply for a housing loan is true.

Suklall says some live with parents or relatives as they cannot afford to buy and rents are rising fairly rapidly in the area.

He explains that too often, the bond applicant will appear to qualify on all counts for a bond, the applicant’s income will be satisfactory and his job record good.

 However, they will then be ruled out because of some minor credit misdemeanour (such as a two month default on a chain store account) of which they might not even be aware.

“A high percentage of our buyers use HP to purchase furniture, cars and electronic goods, but it can be difficult to maintain a squeaky clean record on all these accounts if illness or unforeseen factors crop up.”

He says a fairly large number of applicants qualify for 100 percent home loans awarded by all banks to buyers of affordable housing if they have a combined (husband and wife) salary of R15 500 per month.

This has given a certain relief to the market although far too many applicants fail to make the cut on account of minor debt failures earlier in their lives.

“It has to be appreciated that poverty levels in the less wealthy areas have now become a great deal worse since the onset of the recession”

He says this has made peoples’ lives very difficult and many of the buyers who fall under the affordable category are sent away because they simply cannot manage either the deposit or the legal/transfer costs.

For those who qualify for a bond or with resources looking for buy-to-let opportunities, Parow Valley and surrounds offer solid opportunities with average prices now 25 percent less from the highs of late 2006/2007.

Property prices range from R300 000 to R900 000.

A fairly large number of applicants qualify for 100 percent home loans awarded by all banks to buyers of affordable housing if they have a combined (husband and wife) salary of R15 500 per month.

He says it’s likely to take another 12 months of austere conditions to struggle through after which price rises will become the norm again.

 This will be in large part also due to sellers at last accepting realistic prices.

“Now is the ideal time to buy property if one gets a bond or has money.”

Meanwhile, Chas Everitt International Property Group say low bond and income ratio is good news for homebuyers.

The agency says the average home price in South Africa now is more than three times what it was 10 years ago, despite the sub-prime crisis in 2008.

Thanks to lower interest rates now than in 2001, would-be home buyers do not need to earn three times or more to buy the average home.

Berry Everitt, managing director of the Chas Everitt International Property Group says it pays to invest in property for the long term and potential buyers have lucrative home buying opportunities at the moment. 

He notes that data from Absa puts the current average price of a small home (80 square metre to 140 square metre ) at R754 000 or more than three times the average price of R222 000 (also recorded by Absa) at the end of 2001.

The comparative pricing for medium-size houses (141 square metres to 220 square metres) is just over R1 million on average, compared with the R289 000 recorded in 2001, while the average price for large homes (221 square metre to 400 square metre) has jumped from R408 000 in 2001 to R1.45 million.

Everitt says home prices have almost quadrupled in the past 10 years, yet the current average monthly home loan repayment (on a 80 percent  loan over 20 years) has not tripled or quadrupled from the R3000 a month recorded in 2001, but is only R8 100.

Meanwhile, Chas Everitt International Property Group say low bond and income ratio is good news for homebuyers. The agency says the average home price in South Africa now is more than three times what it was 10 years ago, despite the sub-prime crisis in 2008.

He says the difference is in the home loan interest rate, which averaged 13.8 percent in 2001 and has stayed steady at 9 percent.

“This has also helped to reduce the average home loan repayment as a percentage of the average household disposable income to its lowest level in more than 10 years.”

The decline in this ratio is an extremely important development because it makes it easier for buyers at all levels to meet the income qualification levels for home loans and will stimulate demand in 2012. 

All things being equal, it should also prompt an increase in loan approvals, especially if wages and salaries continue to increase faster than home prices.

He adds that prospective buyers should hurry now if they don’t want to miss out on the next 10 years of value growth. – Denise Mhlanga

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About the Author
Denise Mhlanga

Denise Mhlanga

Property journalist at property24.com

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