First-time buyers have to work harder for home loans

BetterBond first time buyer image

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.”


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About BetterLife Home Loans

Since 2003 BetterLife Home Loans has been SA’s No.1 Bond Originator, handling the entire home loan application process on your behalf – free of charge! Our aim is still to source the best interest rate for you by submitting your home loan application to all the major banks. There is no easier way to apply for a Bond or Home Loan in South Africa!

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