Home loan approvals beat the winter chill
The number of home loans being approved by banks is currently growing at a faster rate than at the beginning of the year, despite the fact that the winter months are usually the slow season for home sales and bond applications.
“This may change in the wake of the interest rate increase that took place at the end of July,” says Shaun Rademeyer, CEO of South Africa’s biggest mortgage originator, BetterLife Home Loans. “Our statistics show that the year-on-year increase in the number of loans being approved has risen from a steady 1% in the first few months of 2015 to 2% in the past two months.” The faster rate of growth, he says, follows continued increases in the number of home loan applications being submitted by prospective homebuyers, and continued decreases in the number of applications being declined by the banks.
What the stats are saying
The BetterLife Home Loans statistics, which represent 25% of all residential mortgage bonds being registered in the Deeds Office, show a year-on-year increase of 3,2% at the end of July in the number of home loan applications being submitted. The number of applications being declined by the banks fell by 11,7%, following a 15,6% drop in the previous 12 months.
“The picture this paints is of a market that is in healthy equilibrium at the moment. While maintaining strict credit qualification criteria, the banks are keen to lend now and expand their home loan books, meaning a bigger percentage of prospective homeowners are able to qualify for loans”, explains Rademeyer. “However, it must also be said that prospective buyers still have a far greater chance of their loan being approved if they apply through a reputable mortgage originator like BetterLife Home Loans. We have a success rate of 75%, compared to the overall average current approval rate of 60%.” He also says that although the July rate increase and another small rate increase expected later in the year will probably dampen home price growth, they are not expected to significantly slow demand.
“As it is, both lenders and buyers have demonstrated continued confidence in real estate over the past two financially trying years for the economy. That is reflected in the fact that the average home price has risen by over 14% during this period to R953 000, and the average approved bond amount by the same percentage to R788 000.” Over the same period, he notes about 47% of home loan applicants were first-time buyers, and the average home price paid in this sector of the market rose by almost 8% to R648 000, while the average approved bond amount increased by 9% to R601 000.
Further analysis of the latest statistics also reveals that the upper end of the market continues to hold its own, with 28% of all home loans formally granted by the banks in the 12 months to end-July having been for more than R1 million, compared to 27% in the previous 12 months.
Visit http://www.betterlife.co.za/ for more information.
How to buy a house when sellers are in charge
When there’s a shortage of well-priced housing stock as there is in SA now, buyers have to learn to deal with more competition for those homes.
“For several years after the 2009 recession, there were more homes for sale than buyers,” says Shaun Rademeyer, CEO of BetterBond Home Loans, SA’s biggest mortgage origination group, “and buyers got used to being able to pick and choose between several options and being able to take their time over purchasing decisions.
“But historically low interest rates and steadily rising demand have absorbed just about all the excess stock, and with developers having been so cautious about bringing new projects to market for the past few years, a clear shortage of homes for sale has now arisen in many popular areas. And the result is that an increasing number of buyers are finding themselves in the unfamiliar position of having to compete with other prospective buyers for the properties they want.”
However, he says, a home purchase is still a complex transaction, and they should take care not to make mistakes in the heat of the moment that could cause them many years of financial regrets. “The most common mistakes that buyers in a competitive market make, is to go into that market without enough cash.
“A lot of lower-priced homes are now being sold for cash to buyers who have spent the past few years preparing for home ownership by ruthlessly eliminating debt and saving up every spare rand so that they won’t have to take out a home loan. It is very difficult to compete with such buyers unless you, too, have cash in hand – at least for a sizeable deposit and all the transaction costs.”
BetterBond also strongly suggests, he says, that buyers who do need home loans to finance their purchases clean up any blemishes on their credit records and work with a reputable bond originator to obtain pre-approval for a home loan before they go house hunting. “This definitely helps to give sellers the confidence that if you do make an offer to purchase, you will be able to obtain the necessary loan and go through with the transaction.”
Another mistake that prospective buyers make, says Rademeyer is to put the car before the home. “Your debt-to-income ratio is one of the first things lenders look at when it comes to assessing how well you’ll be able to afford mortgage payments, so it’s very important to have as little debt as possible before you go looking for a home to buy.”
Next, he says, prospective buyers should be sure to actually visit the areas they are interested in, and find agents they can work with who are familiar with these markets and the actual selling prices that are being achieved there – before they start going to show houses and making offers.
“Being able to go through home listings online is wonderfully convenient, and enables you to narrow down your choices to homes that look like they will meet your needs and your budget. But just as it’s wise to visit an area at different times of the day and week to get a feel for what it’s really like – there really is no substitute for a trained and reputable agent who really knows the local property market and is prepared to share this expertise.”
Then, no matter how competitive the situation is, Rademeyer says, buyers should take their time when viewing properties – and not hesitate to call in a professional home inspector if they have any doubts or questions. “It’s all too easy to miss things that could be very expensive to repair in the excitement of finding a home you like and the heat of a ‘bidding war’ with other buyers.
“But you should never, ever let yourself be pressured into making an offer unless you are absolutely satisfied that the property is sound and in good condition.”
And finally, he says, homebuyers should try to leave their emotions out of things when viewing properties and making offers. “For one thing, this is a major financial decision that will undoubtedly affect their lives for many years, so they should try to make it with a clear head. And for another, it is worth bearing in mind that most sellers are hoping for an offer from someone who is calm and collected and serious about buying their home.”
How to pick the right agent
There are very few things we buy and sell that are worth more than a property, so whether you are selling your lifetime home or an investment apartment, finding the right estate agent to work with is essential.
And research is a critical first step when making that choice, says Shaun Rademeyer, CEO of BetterBond Home Loans, SA’s biggest mortgage origination group.
“There are many different agencies, and you should look at a few to get an insight into how they work. Since the agent you choose is going to represent you and your property, it is important to check that he or she knows your area well and what other properties there have sold recently or are currently for sale.
“An agent who really knows the local scene will be able to assess your home as it sits in the market, alongside similar properties, and give you invaluable help when it comes to setting an asking price. He or she will be able to give you a thorough snapshot of the market in your area and surrounding areas, and will also know about schools, transport and other features that will be appreciated by prospective buyers.”
Secondly, he says, you should only work with an agent with whom you feel comfortable. “You will need to be very honest with your agent during the selling process so need to choose someone you feel you can communicate with easily and who is ‘in tune’ with your expectations.”
Thirdly, Rademeyer says, you should always check results and references before you decide to work with a particular agent. “Ask for the hard facts about properties the agent has sold recently, including actual prices achieved compared to asking prices, and how long the homes were on the market. You should also contact recent clients and ask for their feedback on the agent’s performance.”
BetterBond says buyers are still keen, despite rate increases
The latest statistics from BetterBond Home Loans, SA’s leading mortgage origination group, show that the number of home loan applications received in July was actually 2% higher than the number received in July last year – despite the two interest rate increases that have been announced this year.
“This speaks to the ongoing strong demand for housing as the backlog built up after the 2008/09 recession continues to spill into the market,” says BetterBond CEO Shaun Rademeyer.
“There is more evidence for this as home prices continue to increase in the face of dwindling supply. According to our statistics, the average home price showed a year-on-year increase of 10,75% in July when it reached R906 407. In the same period, the average home price paid by first-time buyers rose 7,63% to R639 071.”
The Betterbond figures also show that the total number of bonds approved in the 12 months to end-July was 3,34% higher than in the previous 12 months, and that the total value of bond approvals showed a year-on-year increase of 6,46% at end-July to some R38,8 billion.
In addition, the average approved bond size has increased by almost 3% in the past 12 months to R755 586, and the average bond approved for first-time buyers has increased by almost 1% to R585 287.
And at the same time, the average percentage of purchase price required as a deposit has shown a 3,62% decline year-on-year, while the average percentage of purchase price required by first-time buyers has declined by 7,17%.
“Nevertheless, we are expecting to see some contraction in the market in the remaining months of this year as affordability issues begin to bite, especially if there are additional interest rate increases, as predicted.”
Such increases obviously make it more difficult to qualify for home loans in terms of the household disposable income required by the banks, says Rademeyer, and also tend to make consumers wary of committing to any new debt such as a home loan.
“For now, though, it is worth noting that the number of applications initially declined by one bank but subsequently approved by others showed a 4,34% year-on-year increase in July – and that the number of applications declined by the borrowers’ own banks actually rose 7,88% in the same period.
“It is thus becoming even more important for buyers to work with a mortgage originator that will not only motivate individual applications, but is able to submit them to multiple banks, in order to secure the best result for the prospective home buyer.”
BetterBond’s overall bond approval ratio in the past 12 months has been 75%, and the total value of applications “rescued” after initially being declines was R18,44bn.
Don’t let those student loans linger too long
The students of today should be the homeowners of tomorrow, but unfortunately many of them are now getting into such debt by the time they qualify that it may be years before they can even think about buying property.
“Young South Africans are generally committed to the idea that education is the best investment they can make in their future, but the high costs of obtaining a tertiary qualification are driving more and more of them to rely on student loans from the banks or the National Student Financial Aid Scheme (NSFAS),” says Shaun Rademeyer, CEO of BetterBond Home Loans, South Africa’s biggest mortgage origination group.
“However, if they don’t want to damage their home-buying prospects and be burdened by debt long after they have qualified, they really also need to learn how to manage those loans and commit to paying them off as soon as possible.”
The growing student debt problem, he says, is reflected in the fact that adult children now often continue to live with their parents for many more years than previous generations did, while they try to repay their loans – and that, as BetterBond’s statistics show, the average age of first-time homebuyers in SA has advanced from 27 or 28 in the 90s, to 34 or 35 now.
“And the extent of it becomes clear when one considers that the NSFAS is currently making about R9 billion worth of loans to 400 000 students a year, but only receiving about R400 million in repayments a year.”
The major reason for all this lingering debt, Rademeyer says, is obviously the difficulty that many new graduates currently have in finding employment – because those who receive loans from NSFAS don’t have to start repaying those loans until they are employed and earning at least R30 000 a year.
“However, what many don’t seem to realise is that the interest on those loans continues to accrue at 4% a year, so the longer they take to find a suitable job or to make another plan to start making repayments, the bigger the total debt grows. We know of several cases, in fact, where it has taken borrowers twice as long to pay back their loans as it took to get their qualification.”
Lifestyles have changed, too, he admits, with many graduates preferring to rent rather than buy a home in order to “keep their options open” to travel or work overseas, and people generally waiting longer to marry and start a family than in years gone by.
“But increasingly we see that old student debt is a significant obstacle for many who are ready to buy their first homes, because it prevents them from being able to qualify for home loans and may result in them having to delay their purchase plans by months, if not years.”
On the other hand, Rademeyer notes, students and recent graduates who quickly meet all their student loan obligations are laying the foundations for a good credit rating, which will undoubtedly mean easier and quicker access to mortgage finance – and to their own homes.
“And because the benefits of home ownership are enormous and lifelong, we seriously recommend that all those who are considering taking out a student loan first ensure that they are properly informed about the total they will have to repay – which is the amount borrowed plus all the interest – and how long that will take.
“Our stance is that the reason for taking the loan must be important enough to justify the extra money they will have to pay back in interest, and that if it is not that urgent, they may actually do better to work and save for a few years and then fund their own studies.”
As for those who are currently studying with the aid of a loan, he says, they should be very careful to keep the total amount borrowed as low as possible, by keeping a tight rein on their budgets.
“They should use public transport whenever possible, for example, or join a lift club instead of using their own car. If living away from home, they should try to share accommodation and food costs. They should also watch their expenditure on books and especially on cellphone and internet costs.
“If it is at all feasible, they should also get some sort of a part-time job – not only for the extra money they will earn but for the work record and experience they will gain. This will undoubtedly make it easier to find proper employment once they qualify so that they can start repaying that loan as soon as possible.”
The benefits of paying a deposit
Of course no-deposit or 100% home loans do make it easier for young buyers and first-timers to get a start in the property market, and since the total withdrawal of such loans in the 2009 recession, they have steadily become more freely available, especially for the purchase of lower-priced properties.
“However, our latest statistics show that the percentage of loans being granted for the full purchase price has actually fallen to 39% now from 41% two years ago, and is still trending downwards,” says Shaun Rademeyer, CEO of BetterBond Home Loans, SA’s leading mortgage origination group.
“This is no doubt a reaction on the part of lenders to the recent contraction in the economy and growing employment uncertainty on the part of consumers – and it underlines the fact that it is always preferable for home buyers to pay a deposit if they possibly can,” he says.
If someone with a new 100% home loan were suddenly to lose their job, for example, and had to sell their home in a hurry, there would be selling costs and agent’s commission to pay as well as the 100% loan to repay, so they could quite easily end up owing more than the sale price of their property.
“The buyer who had paid a 10% or 20% deposit would obviously be able to cope much better in this situation – and it is worth noting that those who put down a deposit are also typically granted their loans at a lower rate of interest, which makes it easier for them to keep up with monthly repayments when times are tough.”
In addition, Rademeyer notes, those who save up a deposit before buying will save a significant amount on the total cost of their home over the loan period.
“For example, a R650 000 home bought with a 100% loan at 10,25% (prime plus 1%) would cost a total of more than R1,53m over 20 years. The same home bought with a deposit of R65 000 and a 90% loan would cost a total of about R1,38m.
“That is a saving of more than R150 000 – a pretty good return on the R65 000 that the homeowner ‘invested’ as a deposit. And it is likely to be even better if the buyer is able to secure a better interest rate by paying a deposit.”
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