Archive | March 2014

BetterBond reports an ongoing positive trend for residential property

residential property

The average home purchase price showed a year-on-year increase of 11,6% at end-February, and now stands at R882 000, according to the latest statistics from BetterBond – which accounts for more than 25% of all residential mortgage bonds being registered in the Deeds Office and is South Africa’s leading mortgage origination group.

These figures also show substantial year-on-year increases in both the number and value of home loan approvals, with BetterBond achieving a massive 12,6% increase in its home loan approval ratio to 76,6%.

“We secured more than 52 000 home loan approvals with a total value of R38,3 billion in the 12 months to end-February, compared to 49 000 approvals valued at R34,5 billion in the previous 12 months,” says group CEO Shaun Rademeyer.

“This shows continued healthy growth in the residential property market, with prices rising in response to higher demand from prospective buyers as well as the higher rate of bond approvals, which enable more of those purchasers to actually buy the homes they want.”

This positive trend is underlined, he says, by the fact that the initial decline ratio for home loan applications made through BetterBond has dropped by almost 19% in the past 12 months, while both the number and value of “rescued” applications (those declined by one bank but approved by another) have risen substantially.

“Indeed, of the R38,2 billion worth of applications approved in the past 12 months, some R18 billion worth were applications that were ‘rescued’ because we were able to submit and motivate them to multiple lenders.”

The average bond amount approved showed a year-on-year increase of 4% at the end of February to R740 000, with the average percentage of purchase price required as a deposit staying virtually static at just under 19%, says Rademeyer.

And there is still strong activity in the first-time buyers’ sector, he notes, although the percentage of applications being made by such buyers has declined, year-on-year, from 53%  of the total to 48% – “probably in response to a drop in the number of 100% (full purchase price) home loans being granted and the simultaneous substantial increase (7,7%) in the percentage of buyers being asked to pay a deposit of at least 10% of the purchase price”.

The average deposit required of first-time buyers over the past 12 months has in fact been 10,6% of the purchase price, while the average home purchase price in this sector of the market has risen 8,4% to R628 000, thanks mostly to the fact that new development is still lagging demand.


Home affordability now under pressure

home pressureHomebuyers are heading for an affordability squeeze this year and should hasten to buy if they don’t want to get caught between rising interest rate and increasing home prices on the one hand, and low wages and salary increases on the other.

That’s the word from Shaun Rademeyer, CEO of BetterBond, SA’s leading mortgage originator, who adds that buyers should also be allowing themselves some financial leeway now in anticipation of a further 100 to 200 basis point rise in interest rates this year.

“Our latest statistics show that the average home price has risen from R914 000 to R936 000 in the past 12 months, while the average approved bond size has risen from R729 000 to R780 000.

“Meanwhile the 50 basis point rate increase announced in January has already increased the monthly repayment on an average home loan approved at the prime rate by R249 – and the monthly earnings required to qualify for that loan by R850.”

And if rates rise by just another 100 basis points this year, he notes, the monthly repayment on an average loan will go up by a further R509, while the salary required to qualify will need to increase by 11%.

“This is without any further increase in house prices, which seems unlikely, and is alarming in the light of the fact that the latest salary trends survey by leading human resources company ECA International shows that most employees in SA can anticipate a wage or salary increase of just 7% this year – or 1% after inflation.”

So the message is clear, Rademeyer says. “Those who have been sitting on the fence waiting for the ‘best’ time to buy should make a move to do so as soon as possible or they could quickly find themselves priced out of the market.

“However, they should also be very careful to allow for a 1 or 2 percentage point rate increase when they are deciding what to buy – which in most cases will mean buying a smaller, less expensive property, or paying a substantially higher deposit.

“Just how much cheaper the property should be, though, or how much bigger the deposit, is something prospective buyers should work out with a reputable mortgage originator like BetterBond before they go house hunting, because there is a real danger of overbuying with the market in its current state of flux.”

Property leaders positive on Budget

Finance Minister Pravin Gordhan. Image by Business Day

Finance Minister Pravin Gordhan.
Image by Business Day

Finance Minister Pravin Gordhan’s Budget speech received a positive reaction from the heads of various real estate companies.

Dr Andrew Golding, CE of the Pam Golding Property group welcomed the minister’s efforts to prioritise economic growth, job creation and infrastructure expenditure. Golding also praised the provision of R9.3-million in tax relief for cash-strapped consumers.

“From a property market perspective, it is disappointing to note that there was no property specific tax relief or schemes introduced which would help home ownership generally, but in particular first time home ownership. However, new spatial plans for cities, upgrading informal settlements, increased social infrastructure and improved public transport, coupled with the announcement of 216 000 houses to be built, is positive news,” says Dr Golding.

“Of concern however, particularly on the back of recent fuel price hikes, is the increase in the general fuel levy by 12 cents a litre and the road accident fund levy by 8 cents a litre, as this places further pressure on consumers and inflation.”

“All in all, the Budget appeared to meet the challenging need for a balance between curbing unnecessary expenditure and investing in our country and its people. Considering the ongoing global economic uncertainties faced, South Africa’s economic policy has consistently achieved a stable economy and the Minister of Finance is commended on this,” concludes Dr Golding.

Shaun Rademeyer, CEO of BetterBond, was pleased with the announcement of measures to help small businesses in South Africa but also lamented the lack of tax relief for homeowners.

“We were also pleased that further measures were announced to encourage small business development, as this indicates growing government recognition of this sector’s ability to generate employment and assist more South Africans to rent or buy decent housing,” Rademeyer said.

Berry Everitt, MD of the Chas Everitt International, said that the Budget met expectations for an election year.

“The focus on education, health, housing and infrastructure, grants and pensions was thus almost inevitable, and it is also no surprise that the widely rumoured tax increase for the wealthy did not materialise.”

Lew Geffen, chairman of Sotheby’s International Realty in SA, also welcomed the decision not to raise the tax rate on the wealthy.

Geffen says this type of wealth tax, similar to that recently imposed in the UK and some European countries, is of course an easy answer for governments that urgently need to raise revenues to please poor voters who are clamouring for service delivery.

“However, the Minister has realised that it is also a trap, because it generally offers only a very short-term advantage, followed by a long and often permanent drop in revenues. High earners are quick these days to react to any punitive tax measures by simply moving their wealth elsewhere and, once bitten, are reluctant to move it back again, especially if, as in SA, they perceive their contribution are being wasted through widespread corruption.”

Rise in value of home loan aprovals infographic

Last week’s article explained that the total value of home loan applications submitted by BetterBond Home Loans, SA’s biggest mortgage origination group, had increased by more than R2 billion (or 9,5%) in the 12 months to end-January, to a total of R23,6 billion. This week we summarise the information in an infographic for a quick glance and easy sharing.


Steep rise in value of home loan approvals


The latest statistics released by BetterBond Home Loans, SA’s biggest mortgage origination group, show just how much the residential property market has strengthened over the past year.

The total value of home loan applications submitted by the group, for example, increased by more than R2 billion (or 9,5%) in the 12 months to end-January, to a total of R23,6 billion.

The total value of bonds for which the group was able to obtain approval during the period rose even more steeply (by 17,8%) to R19 billion – which included R9,7 billion worth of applications that it was able to ‘rescue’ and see through to approval after they were initially declined.

The average approved bond size in the 12 months to end-January was R781 087, compared to R715 240 in the previous 12 months.

The increase in the value of bonds approved, says BetterBond CEO Shaun Rademeyer, was partly due to a year-on-year increase in the average home purchase price from R876 248 to R952 579, but also to an increase in the actual number of applications.

“In addition, a better quality of applications from potential borrowers and an increased appetite for long-term lending on the part of the banks resulted in a 13,5% drop in the average number of applications that received an initial decline from the banks – and helped to bring about an 8,7% increase in our average monthly bond approval ratio.”

The quality of the applications was better, he says, because potential borrowers were generally in much better financial shape in 2013 than in 2012, having worked hard to reduce their debts and increase the amount of disposable income they had available to cover their monthly bond repayments.

“There also appeared to be much wider acceptance of the need to pay a deposit – and of the advisability of doing so, not only in order to increase the chances of qualifying for a home loan, but also so as to create some repayment leeway should interest rates start to rise as they have recently just done.”

Simultaneously, Rademeyer says, the average percentage of purchase price required by the lenders as a deposit fell from 20,45% in the year to end-Jan 2012 to 18,98% in the 12 months to end-Jan 2014, so the actual average deposit required actually rose very little, despite the increase in house prices.

With regard to first-time buyers, he says there was a slight increase in the bank’s willingness to grant bonds for 100% of the purchase price of a property, and that home-buying in this sector has also been facilitated by somewhat slower growth in home prices at the lower end of the market.

“In addition, the average percentage of the purchase price required as a deposit by first-time buyers also showed a substantial year-on-year decline from 12,4% to 10,6%, which actually equated to a R6000 drop in real terms.”

BetterBond’s statistics show that the average approved bond size for first-time buyers in the past 12 months was R622 384, compared to R579 933 in the previous 12 months.

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