De­posits here to stay

Av­er­age home­buyer still needs to save R208 000

Finweek English Edition - - Moneyclinic - JOAN MULLER

HOUSE PRICES MAY WELL be back in dou­ble-digit growth ter­ri­tory for the first time in two years, but it ap­pears the hey­days when 100% mort­gages were the norm are gone for good. Es­tate agents say banks have yet to open their lend­ing taps any­where near enough the level gen­er­ally an­tic­i­pated. In fact, lat­est fig­ures from mort­gage orig­i­na­tor ooba show home­buy­ers are still re­quired to pay a cash de­posit of 20,2% on av­er­age as a per­cent­age of the buy­ing price. That comes to R208 181 if Absa’s cur­rent av­er­age house price of R1 030 600 is taken as a bench­mark. Of course, this ex­cludes the cash re­serves re­quired to pay for trans­fer and mort­gage reg­is­tra­tion costs.

Jawitz Prop­er­ties MD Her­schel Jawitz says there’s a per­cep­tion among con­sumers that banks are ap­prov­ing 95% and 100% loans more read­ily, which has led to a no­tice­able up-tick in ap­pli­ca­tion vol­umes. But Jawitz says the re­al­ity is that most buy­ers won’t qual­ify for a mort­gage un­less they put down a min­i­mum cash de­posit of 10% of the buy­ing price.

Less than 50% (one in ev­ery two) of ap­pli­ca­tions are be­ing ap­proved by banks, a sit­u­a­tion Jawitz notes is cre­at­ing huge frus­tra­tion and un­nec­es­sary work for in­dus­try play­ers. “While we don’t ex­pect banks to be ir­re­spon­si­ble and go back to loan-to-val­ues of 100% plus costs, it’s time banks start tak­ing a more pos­i­tive view on the hous­ing re­cov­ery.’’

Other in­dus­try play­ers agree. Pam Gold­ing Prop­erty (PGP) CE An­drew Gold­ing says al­though sales vol­umes have been on the rise since Au­gust last year, the mar­ket has to date seen noth­ing more than a “mar­ginal” open­ing of banks’ credit taps. Gold­ing says banks need to re­lax their lend­ing cri­te­ria fur­ther be­fore a full-blown hous­ing re­cov­ery will ma­te­ri­alise.

Lat­est fig­ures from the SA Re­serve Bank con­firm mort­gage lend­ing still has a long way to go to re­turn to the vol­umes seen dur­ing the boom years. Mort­gage ad­vances to house­holds grew by less than 4% in March year-on-year – down from growth of around 30% two years ago. That brought the value of new mort­gage ad­vances ap­proved to R3,3bn in March, 45% less than the R6bn ap­proved in March 2008.

Absa Bank – South Africa’s biggest mort­gage lender, with an es­ti­mated 33% mar­ket share – sent out a clear mes­sage ear­lier this week, say­ing prospec­tive home­buy­ers need to get used to the idea of sav­ing for a cash de­posit. Luthando Vu­tula, man­ag­ing ex­ec­u­tive at Absa Home Loans, told a me­dia brief­ing in Jo­han­nes­burg a min­i­mum cash de­posit of 15% will re­main the norm for home­buy­ers ap­ply­ing for a mort­gage through Absa. Loans of more than 85% will be con­sid­ered on a “se­lec­tive” ba­sis only.

Vu­tula says high debt lev­els and ris­ing liv­ing ex­penses – in­clud­ing elec­tric­ity price hikes and in­creases in fuel costs – will con­tinue to im­pact on con­sumers’ abil­ity to re­pay their mort­gages.

Says Vu­tula: “We’re bullish about the prospects of the hous­ing mar­ket but loan-to-val­ues of be­low 85% is the key space where we want to play. En­cour­ag­ing home­buy­ers to pay a de­posit there­fore re­mains crit­i­cal.”

Jac­ques du Toit, prop­erty an­a­lyst at Absa Re­tail Bank, sup­ported this view, say­ing con­sumers shouldn’t ex­pect banks to go back to 100% loans. “South Africans will have to change their mind­sets and re­alise the mar­ket no longer op­er­ates in the same way as was the case dur­ing the boom years.”

Lat­est data from banks show house price growth has ac­cel­er­ated no­tice­ably over re­cent months, with FNB’s hous­ing in­dex up 10,1% in April year-on-year, the first dou­ble-digit in­fla­tion recorded in two years. Absa’s house price in­dex in­creased an av­er­age 9% in first quar­ter 2010.

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