Homebuyers urged to save as banks raise deposit levels

THE SLOWING economy has not yet caused a decline in the percentage of home loans applications being approved by the banks, but it has caused them to start raising deposit requirements in recent months, according to Shaun Rademeyer, chief executive of mortgage originator BetterLife Home Loans.

“Our statistics show that we are still securing approvals for 75 percent of the applications we submit, and that the banks are still keen to grant home loans. However, they are applying strict affordability criteria in terms of the National Credit Act, with the result that most buyers now require a bigger percentage of the purchase price as a deposit,” he says.

“The main reason for this change is the rise in interest rates since July last year, which has pushed up the monthly repayments on all kinds of debt and, combined with rising inflation, has put many household budgets under pressure and negatively affected housing affordability.”

After paying all their monthly bills, Rademeyer says, many households just don’t have enough disposable income left at the moment to comfortably afford a bond repayment, and in such circumstances, the banks have no choice but to restrict the size of loans they make – with the result that prospective buyers must either buy less expensive properties or put down bigger deposits.

What is more, he says, given the mounting pressures on SA’s lending institutions to lower their risks and increase their reserves, it is not expected that the trend of increasing deposit requirements will change for some time. This means that those who are currently on the fence about buying property should prioritise debt repayments and savings to enable them to make a purchase as soon as possible.

“And first-time buyers may actually find it somewhat easier to take this step than others, purely because the deposit criteria in the price categories they favour are relatively low. Statistics show that in May the average first-time buyer home price was R724 000, and the average percentage of purchase price required was just R86 000 or 12 percent.

“By contrast, the average home price for repeat buyers reached R1.04 million, well up from the R972 000 recorded a year before, and this rise means that these buyers are currently required to have R218 000 (21 percent) available in cash before applying for a home loan, in addition to the funds required to cover transfer duty, bond registration and legal costs.”