Deposits here to stay
Average homebuyer still needs to save R208 000
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.