Get cracking if you want to get into the market.

Prospective homebuyers should accelerate their plans now if they still want to benefit from the “double positive” of low interest rates and low property prices.

“Home values have begun to rise in many parts of the country – and even though the average rate of growth will probably be below the rate of inflation for the next couple of years, this is really of little relevance to first-time buyers,” says Berry Everitt.

“What counts for them is that whichever home they want to buy already costs more than it did last year, and will cost even more next year. The longer they wait, the more difficult it is going to be to get on to that first rung of the property ladder.”

For one thing, he says, every increase in property prices means that the prospective buyer has either to earn more or increase the size of his deposit to qualify for a home loan, even if interest rates stay the same.

“For example, if a home now priced at R500 000 were to increase in value this year by just 5%, the amount needed for a 10% deposit would rise from R50 000 to R55 000. At the same time, the size of the 90% home loan required would rise from R450 000 to R495 000 and the prospective buyer would have to earn about R1 500 more a month to qualify.

Everitt says that while this is a simple example, the principles hold true right across the price spectrum.

“Then there’s the question of interest rates. If imported inflation due to the economic troubles in Europe and the rising oil price causes the Reserve Bank to raise the repo rate, banks will most likely raise their mortgage rates as well, and once again buyers will have to earn more to qualify for loans.

“If the base home loan rate were to rise just one percentage point from 9% to 10%, for example, the buyer of the R500 000 home in our example would immediately need to earn R1 000 a month more to qualify. What is more, the monthly repayment on the loan would rise by around R300, so there would be an ongoing long-term effect on the family’s finances.

In short, he says, if you are an aspirant homeowner, the sooner you put your plans into action, the better.

If you would like to speak to a Professional Mortgage Specialist about your lending requirements, please phone Mortgage Plus Bond Originators on:

Complete this short form online

011.327.4489 / 0861 1111 93

morne@mortgagepluscc.co.za

www.mortgagepluscc.co.za

Home loans up as banks relax lending rules

At the height of the property boom in 2006, South Africa’s four major banks were approving an average of more than 30 000 new home loans every quarter.

During 2009 this number had dropped to well below 8 000 as banks tightened lending criteria considerably in response to the global financial crisis, as well as factors such as interest rate increases, high household debt ratios and the effect of the National Credit Act.

However, with sharp cuts in the repo rate over the past couple of years, the prime lending rate has dropped to below its 2006 level and, according to property analysts, all indications are that banks have been slowly relaxing their lending criteria again. The result is that the number of new home loans approved is on an upward trend again, having increased by 10 percent since 2009.

Mortgage Plus recently completed a study of the number of home loans approved per quarter and loan-tovalue ratios of the four major banks – Absa, Standard Bank, FNB and Nedbank – from 2006 to the first quarter of 2011, to assess whether the strict lending criteria applied over the past few years since the economic crisis have eased.

“There is a slow and cautious recovery and there has been a slight drop in the first quarter of 2011, with fears of a double dip recession being mooted. But an upward trend in new lending for the residential market indicates that banks are developing more of a desire for risk,” says analysts .

“Boosting indications that lending criteria have relaxed is the fact the loan-to-value (LTV) ratios are on a similar upward trend. After dropping from an average for all banks and all market segments of almost 90 percent in 2006 to just 79 percent in 2009, they have climbed back up to an average of 82 percent since the first quarter of 2010.”

She says there is a significant difference in LTVs, however, once these are assessed in terms of market segment. Poorer households are accessing home loans of over 90 percent LTV whereas the LTVs for the comfortably off and super-wealthy are around 80 percent and 75 percent respectively.

“A number of factors account for this trend. The first is affordability – it is often simply the case that comfortable and wealthier buyers have cash to put down deposits and have often sold previous homes at a profit, whereas those buying in poorer areas may not have savings or the profits from the sale of a home to invest.

“However, it should also be considered that much of the bad debt on the banks’ books after the downturn in property values and rising interest rates caused many homeowners to default, came from the wealthier sector and higher-priced homes. Also, there has been pressure on the banks to contribute towards South Africa’s low-cost housing backlog by making home loans more accessible to lower income earners.

“There has been comment from the property sector that the strict lending criteria are a major factor constraining house price growth, and that in light of low interest rates this approach may be too conservative – creating something of a buyer’s market,” says Ivins.

However, she says, there is clearly light at the end of the tunnel.

“Interest rates are low, home loan accounts are performing better and lending criteria should become more lenient, which should stimulate prices and demand as household debt comes under control and banks resolve the distressed property sales and properties in possession still on their books.”

Please contact us if you require any further information or would like to apply for finance:

Complete this short form online

011.327.4489 / 0861 1111 93

morne@mortgagepluscc.co.za

www.mortgagepluscc.co.za