You need a bigger deposit to get a home loan
The days of homebuyers being granted 100-percent bonds appear to be over as banks tighten up on their lending criteria. Neesa Moodley-Isaacs reports
The prime lending rate has dropped to 10.5 percent, its lowest level in three years, but banks are tightening up their lending criteria and you will need to put down a sizeable deposit if you want to qualify for a home loan. You will also have to pay the transfer and registration costs out of your own pocket.
Saul Geffen, the chief executive of mortgage originator ooba, says the latest oobarometer (ooba’s house price index) shows a trend of diminishing average bond amounts month-on-month. In July, the size of the average approved bond dropped by 7.7 percent to R587 222 from R636 169 in June.
“The continuing drop in the average bond size is a reflection of the banks’ increased deposit requirements,” Geffen says.
Year-on-year, the average deposit, as a percentage of the purchase price, continues to show a significant increase: it was up by 30.8 percent from July last year.
According to the oobarometer, buyers are putting down an average deposit of 24.2 percent of the purchase price to secure a bond, compared with 18.5 percent in July last year. The oobarometer shows that, month-on-month, the required deposit has increased by 28 percent since June.
However, Personal Finance has it on good authority that at least one of the four big banks will be taking a more favourable stance on deposits for home loans from next month.
The current lending criteria of the major banks are:
Standard Bank is not granting 100-percent mortgage bonds, regardless of the property value.
For properties valued up to R300 000, you can get a 95-percent loan. For properties valued between R300 000 and R2.5 million, you can get a 90-percent loan, and for properties valued at R2.5 million and more, you can get an 80-percent loan.
These terms are much tighter than they were in June last year, when Standard Bank announced that it would grant 100-percent home loans for properties valued up to R750 000. For properties valued between R750 000 and R2.5 million, you could get a 95-percent loan, and for properties valued between R2.5 million and R3 million, you could get a 90-percent loan.
Currently, if you are purchasing vacant land, you can get a loan of 75 percent if you are an existing Standard Bank customer. If you are not a Standard Bank customer, you can get a 75-percent loan if the land has a value of under R1 million and a 60-percent loan if the value is more than R1 million.
Last year, Standard Bank sold repossessed properties for a total of R131 million (this amount was set off against the outstanding debt on the properties), which is 42 percent higher than the 2007 amount of R92 million.
Absa requires a 15-percent deposit on a home loan if you an existing client and a 30-percent deposit if you are not an Absa client.
If you are buying vacant land, you will have to put down a 40-percent deposit.
The average deposit on an Absa home loan is 22.6 percent, up from an average of 14.4 percent last year.
Luthando Vutula, the managing executive of Absa Home Loans, says the tighter deposit requirements have been implemented as a result of the declining property market.
“The extent of the deposit requirements are directly related to the performance of the property market in the different property value segments and the pace with which property prices have declined in these segments,” he says.
However, Vutula adds that if you cannot meet the deposit requirements, the bank will accept other forms of collateral, such as your retirement savings.
FIRST NATIONAL BANK
Jan Kleynhans, the chief executive of First National Bank (FNB) Home Loans, says the bank is repossessing about 40 properties a month, or about 480 properties a year at a total value of about R300 million.
Repossessions have nearly doubled since a year ago, he says.
“Despite the drop in interest rates, real disposable income in the household sector is declining, and with it the capacity to reliably service debt in the future,” he says.
If you buy a property valued below R1.5 million, you can get a loan of 95 percent with FNB; if you buy a property valued at more than R1.5 million, you can get a loan of 80 percent.
Kleynhans says FNB is offering higher loans than other banks, as it is confident that the current environment is a good opportunity to attract “good risk” customers.
The bank has introduced a “quick sell” programme to help customers who are battling to meet their bond repayments to fast-track the sale of their homes before their homes are repossessed.
If you purchase a “quick sell” property, FNB will give you a 100-percent loan, which means you need cash only to pay the transfer and registration costs. For a list of the properties available, go to www.quicksell.co.za
Clive van Horen, the managing executive of retail secured lending at Nedbank, says the bank offers 90-percent loans on properties valued at under R3 million and loans of 85 percent on properties valued at more than R3 million. (These terms apply whether or not you are an existing Nedbank client.)
“The volume of new home loan applications has dropped by more than 50 percent from the first half of 2008 to 2009, suggesting that consumers’ concerns about the broader economic environment are causing them to hold back on buying houses,” he says.
Van Horen says the bank tightened its lending policies in the second half of last year in anticipation of the increased risk levels and higher cost of funding. “We believe this was the only logical response to protect the bank’s capital and depositors,” he says.
Nedbank’s home loan approval rate has declined since last year – from an average of one out of three applications to one out of four applications. Van Horen says the rate is likely to improve only once consumer indebtedness declines, economic growth resumes, discretionary incomes increase and house prices stabilise.
Nedbank offers 100-percent loans on repossessed properties and properties sold via the Nedbank auction programmes, where distressed homeowners can sell their properties to avoid repossession.