First-time buyers have to work harder for home loans

First-time homebuyers currently account for almost one-third (31%) of all home loan grants, but their numbers are declining and they are clearly having to work harder and prepare better to get into the market.

That’s the word from Rudi Botha, CEO of SA’s biggest mortgage originator BetterBond, who says: “Even though deposit requirements are considerably lower than a year ago, and even though first-time buyers (FTBs) are buying less expensive homes, we have seen a drop in the number of FTB applications in the past year, and a corresponding drop in the percentage of bond grants that are going to FTBs.

The BetterBond statistics – which represent 25% of all residential mortgage bonds being registered in the Deeds Office and include applications to and bond grants from all the major lending banks in SA – show that in April, the average percentage of the home purchase price that FTBs were required to pay as a deposit was 10,1% – considerably less than the 15% required a year earlier.

They also show that the average home purchase price for first-time buyers (FTBs) applying for a home loan in April was R593 468, or 4,8% less than the R623 592 average recorded in April 2011. This could mean, says Botha, that FTBs are setting their sights lower and opting for less expensive homes in order to meet the banks’ strict affordability criteria.

What it definitely does mean is that in rand terms, the average deposit amount required of FTBs has dropped from R93 435 to R60 475. “This is much lower than the average 13% currently required of most buyers in the R500 000 to R1m price bracket. What is more, a home at the current average FTB purchase price would attract no transfer duty, so the amount of cash that they would need to complete the transaction is considerably less than a year ago.”

And yet, he says, the percentage of home loan applications being made by FTBs has dropped from 49% a year ago to 40% now, while the percentage of bond grants going to FTBs has fallen from 41% to 31%.

“This is obviously still a large number, and indicates that there is still strong demand among FTBs, but it also shows that they need to be increasingly well-prepared financially before applying for a home loan. To start with, interest rate concessions are a thing of the past, which affects affordability calculations, so FTBs should strive to save the biggest deposit possible.

“They may also find it easier going if they can get their parents to sign surety for them or to be co-applicants for the loans, which is a growing trend worldwide.

“And, of course, they must make sure that their credit records are spotless, with all accounts paid on time and up to date. If there are black marks, even for minor problems, they will find it is really worth taking the time to sort these out before applying for a home loan.”

Agents: Turn DIY Sellers into Clients

In a slow market, it is quite common for homeowners to think they can make more on their properties by selling themselves and not paying agent’s commission, or to think that they can sell faster by dropping their asking price by the amount they would have paid an agent.

However, you can turn most of these potential DIY sellers into clients if you don’t slam the idea but just make the following six observations during your listing presentation to subtly show them how much work and worry you would be taking off their shoulders:

* I have access to information that will help you work out what your property is really worth in today’s market. This is vital because pricing too high will turn potential buyers right off before you even get a chance to show them your home, while pricing too low could cost you part of your equity.

* I can show potential buyers other homes as comparables. Most buyers will want to view other homes in the area as well as yours and if these are being shown by other agents, how will you know how your home is holding up in the comparison?

* It is my job to be focused on marketing your home – to advertise it widely in print and online, to prospect for buyers, to network with other agents about possible buyers, and to be available full-time to arrange viewings with potential buyers. The biggest difficulties for DIY sellers are trying to generate sufficient awareness of their property, and having to take time off from their own jobs and lives to deal with potential buyers.

* I can make sure that you only get offers from buyers who are actually financially qualified to buy your home. I can also put them in touch with an originator or directly with a bank to help them get their home loan. It is very difficult for homeowners to do this.

* I can take the heat. Lots of potential buyers will be deliberately critical about your home as a starting point for their price negotiations. This is likely to upset you and could result in you refusing to deal with a person who actually really does want to buy the property. I can see past all that and keep the talks going.

* I will handle all the paperwork. Property sale agreements are specialised and quite involved legal contracts but I will explain everything to both you and the buyer so you can conclude the transaction with confidence that you wont have problems later. I will also make sure all the necessary paperwork gets to the originator, banks and attorneys, and follow up regularly to see that the transaction goes ahead as fast as possible.

Agents: Are you doing all you can to market yourself?

In a slow market, it’s more important than ever to market yourself and give yourself a strong presence in your area, so that more potential clients will be aware of the service and expertise you can offer, and award you their mandates instead of your competitors. Here are five expert ideas from top performing agents for making yourself more visible:

* Shorten the lines of communication. Publicise a telephone number (landline or cell) where calls will come directly to you or your assistant. Similarly, use a personalised email address. Clients and potential clients want to communicate directly and quickly with you, not via the office reception desk or a company email address.

*Don’t neglect your direct response marketing. You can’t rely on your for-sale ads to get known and attract new clients because the chances are very slim that potential sellers are going to look at them and say: “I must call this person to list my home”. You need to actively market your name and your service to homeowners in your area.

* Prospect for new business for at least 90 minutes of every day. But instead of cold-calling and door-knocking, try calling expired listings and private or DIY sellers who were or are obviously interested in selling their homes. Even if you don’t get a mandate this time, these people will get to know who you are and where to turn for help in future.

* Communicate, communicate. Send something useful – a market update, a newsletter, a bulletin about a house you’ve just sold – to your prospective sellers and buyers at least once a month. This will keep your name uppermost in their minds when they do decide to make a move.

    More importantly, call every existing client that is under mandate or whose home is in transfer at least once a week and give them feedback about what you have done with regards to marketing their property and what response you have had, or how far their transfer has progressed. The very best publicity you can get will be from satisfied clients who you nutured all the way through the sale process.

* Support local good causes and become a local celebrity. If you’re going to pay for signage, why not use the local school billboard and let them have your money? Spearhead a local campaign to collect food and blankets for the homeless, sponsor a fun day for the children in an orphanage, hold property photo exhibitions at a church fete in return for a donation, support your local ratepayer’s association. You will be doing good – and raising your profile as the local “real estate expert” at the same time.

Deposit Requirements Down

Some excellent news for prospective homebuyers – and their agents – this month is that almost 40% of all loans granted through BetterBond in April (39,67%) were for the full amount of the purchase price (100% bonds), compared to only 30% of loans granted a year ago.

In addition, the average percentage of purchase price required as a deposit by the remaining 60% of borrowers showed a year-on-year decline in every price category (see graph).

All these statistics include the affordable market sector.

Meanwhile our figures also show that theEastern Capeis currently the cheapest place to buy residential property, while the suburbs to the north and west ofJohannesburgare the most expensive areas.

The figures show that in the areas that BetterBond operates, April saw the smallest home loans, on average, going to buyers in the Eastern Cape (R552 081) followed by the Free State and Northern Cape area (R556 847).

As the table shows, Johannesburg south and east came in next, followed by KwaZulu-Natal, the Western Cape and Pretoria, with borrowers in the Johannesburg north and west area receiving the biggest loans.

 The order of these numbers also corresponds pretty closely to the order of the actual home price figures for these areas recently released by Absa for the first quarter of this year.

Avg loan

(BetterBond)Annual change %Avg price

(Absa)Avg deposit % required (BetterBond) E Cape552 0817,8860 51313FS & NCape556 847-2,2924 00013Jhb S&E619 62525952 92313KZN652 57414,3936 34613W Cape728 3064,71 174 65017Pretoria789 3200,21 190 75417Jhb N&W851 090-5,91 445 87517

Younger Buyers Getting More Bonds

Well over 60% of home loans granted are currently going to people between the ages of 30 and 50, but there has been slight increase in the number granted to those between 30 and 40 and a decline in the number granted to those between 40 and 50 over the past six months (see graph).

The latest statistics from BetterBond, SA’s biggest mortgage originator, also show that there has been a steady decrease in the percentage of loans granted to people over the age of 50 for the past year, despite the fact that from this age on, an increasing number of people are inclined to sell up their family homes and downsize to smaller properties or retirement villages.

The implication, says BetterBond CEO Rudi Botha, is that a significant number are now either using the equity built up in their large properties to pay cash for smaller homes, or perhaps delaying the move from their family homes until home prices are more favourable.

“An encouraging development in the past 12 months, however, is that the percentage of loans being granted to buyers between the ages of 20 and 30 – who are typically first-time buyers – has gone up substantially, from about 16,5% to almost 21%,” he says.

“Taking into account that the total number of loan applications has increased by 45% in the past 12 months, this indicates that there is a healthy amount of ‘new blood’ coming into the market that will, in due course, result in an upward movement of prices.”

Meanwhile, the BetterBond stats also show which areas are most active in terms of bond grants, with 80% of grants currently pretty evenly divided between buyers in Greater Pretoria, the Northern and Western suburbs of Johannesburg, the Western Cape and KwaZulu-Natal.

And according to these figures, the average loan amount currently being granted in Johannesburg North and West is now around R837 000 (compared to R840 000 a year ago) and the average in Greater Pretoria is R719 000 (R729 000), followed by the Western Cape at R700 000 (R656 000) and KZN at R645 000 (R659 000).

ISSUED BY BETTERBOND

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