Thrifty buyers benefit as banks seek to lend more

Banks are competing for new home loan business at the moment and prudent home buyers are benefiting as a result, says Rudi Botha, CEO of BetterBond, SA's biggest bond originator.

"According to our latest statistics*, the average approved bond size in SA is currently 6,05% higher than it was 12 months ago, even though the average house price has only risen 2,85% in the same period," he says.

"This corresponds to a drop in deposit levels, from around 22,5% of purchase price at the end of February last year to an average of just under 20% at the moment, which makes it easier and more affordable for home buyers to qualify for a home loan."

At the same time, he notes, prospective borrowers are playing their part by lowering their debt levels. "The household debt-to-income ratio has dropped from 80% to 70% over the past five years, and is set to continue on a downward trend thanks to lower inflation and interest rates."

The inflation rate reached a three-year low of 4% at the end of February and the home loan "base" interest rate was lowered by 25 basis points to 10% in March. 

"In addition, our statistics show that the average home buyer's household income has risen by about 4% in the past year, so there is significantly more disposable income available now to cover a monthly bond repayment," says Botha.

"As originators, we then provide further assistance to borrowers by negotiating the most favourable interest rates on their behalf, and that boosts the take-up of home loans, as reflected in the fact that the percentage of applications converted to formally-granted bonds has increased from 60,23% to 64,45% over the past 12 months."

In the first-time buyer sector, he says, the average bond size has risen by 8,26% over the past year as opposed to a 7,28% increase in the average purchase price, taking the average deposit required down from 12% of purchase price to 11,2%.

"In addition, the average household income in this sector has jumped by 7,75%, to produce a substantial boost in affordability which has enabled many of these buyers to enter the market at a higher level.

"This is confirmed by a drop in the percentage of bonds granted in the R250 000 to R500 000 category, from 18,8 to 15,4%, and a corresponding increase in the percentage of bonds granted in the R500 000 to R1m category, from 38,5% to 41,2%."

*BetterBond is our preferred mortgage originator. Its statistics represent 25% of all residential bonds being registered in the Deeds Office and are thus a reliable indicator of the state of South Africa's residential property market.