Author : CEO – Shaun Rademeyer – BetterBond Home Loans

Higher incomes needed for home loans
12 Dec 2013

According to the latest statistics from BetterBond Home Loans, home buyers in South Africa now need to earn a gross monthly income of around R30 000 to buy an average home costing some R952 000.

The BetterBond figures also show that 64 percent of buyers currently have to pay a deposit in order to secure a home loan, and that the average deposit required for a home priced at R952 000 is around R99 000 or 10.4 percent.

BetterBond CEO, Shaun Rademeyer, says this puts the average home loan required to buy such a home at R853 000 and the average monthly bond repayment at just over R7 400.

He says in the days before the National Credit Act, the simple rule-of-thumb was that your monthly bond repayment should not exceed 30 percent of your gross salary, which would have meant that a gross salary of R24 700 was enough.

But in terms of the Act, Rademeyer says banks are obliged to try to stop consumers from becoming overindebted. So when they consider a home loan application they must now also take into account your existing debt commitments and regular monthly expenses and see if there is enough disposable income left over to comfortably cover the monthly bond repayment, he says.

“And because of the high household debt levels in this country, and the continually rising cost of food, transport, utilities, healthcare and education, most prospective home buyers need to have higher earnings now in order to ensure that there will be a big enough amount, ‘free and clear’, every month to cover their bond instalment.”

Rademeyer says things are a little easier for first-time buyers, with the average home price in this sector of the market having risen by just R27 000 in the past 12 months and deposit requirements having shrunk considerably to between about six percent and 10 percent.

What’s more, he says about two-thirds of the 100 percent bonds that are being granted are going to buyers at the affordable end of the market where most buyers tend to be first-timers.

He notes that in any case, the banks’ still-strict lending criteria does not appear to have put much of a damper on the demand for home finance or in fact on the banks’ willingness to lend to qualifying applicants.

The BetterBond statistics show a 3.75 percent year-on-year increase in November in the number of home loan applications received and, even more significant, a 14 percent increase year-on-year in the number of applications formally granted, that is, approved and taken up by the borrowers.

The figures also reveal a 10.5 percent year-on-year drop in November in BetterBond’s initial decline rate (the percentage of applications declined by the first lending institution to which they are submitted) and a15 percent year-on-year increase in the ratio of applications declined by one bank but approved by at least one other.

This took the group’s average approval ratio to 76 percent in November, which means that it is securing a bond approval for at least three out of every four of its applicants and the statistics reveal that about 80 percent of these approvals are taken up by borrowers and converted to formal grants.