Prospective homebuyers have been given another “breather” when it comes to saving a deposit and applying for a home loan – but they should not allow last week’s decision by the Monetary Policy Committee (MPC) to leave interest rates unchanged to lull them into a false sense of security.
That’s the word from Shaun Rademeyer, CEO of BetterLife Home Loans, SA’s biggest mortgage originator, who says that with the cost of living and property prices continuing to rise, it is becoming increasingly difficult for applicants to qualify for home loans because they do not have sufficient discretionary income.
The MPC decision, announced by Reserve Bank Governor Lesetja Kganyago, means that the repo rate remains unchanged at 7% and that the prime and variable home interest rates remain at 10,5%.
“However, inflation as measured by the CPI is currently outside the MPC’s target ceiling at 6,4% – and could rise even further depending on the performance of the rand and oil prices over the next few months. What is more, food price inflation is currently running at almost 12% thanks to the drought and is not expected to drop back significantly until the next harvest season,” he says.
“This means that households that are already struggling to make ends meet – and especially those with heavy debt loads – are likely to find things even more difficult in the coming months.”
The latest estimates, Rademeyer notes, indicate that the average SA consumer spends almost half of their after-tax income on debt repayments, so they have to make the other half stretch to cover accommodation, food, transport, utilities, school fees, insurance and any other expenses. “And with the cost of all those other items continuing to rise fast, there is understandably very little left to save in order to accumulate a deposit on a home.
“It also becomes increasingly difficult to meet the discretionary income requirements in terms of the National Credit Act. In terms of these requirements, the banks have to ensure that borrowers will not only be able to afford their monthly bond repayments but will not be stretched to the financial limit to do so, as this would leave them very vulnerable to any kind of financial shock, such as unemployment or a large interest rate increase.”
Indeed, he says, with unemployment figures continuing to rise, this is becoming an increasing concern for lenders, who are currently evaluating home loan applications with great caution.
“Meanwhile, home prices continue to rise – even though the rate of growth is slowing – which means that prospective borrowers actually need bigger loans to buy the same property than they did a year ago, rather than the smaller loans they can actually afford.”
Consequently, says Rademeyer, it is vital that those who have their heart set on buying a home in the next year should immediately take action to cut expenses ruthlessly, pay off debts and save a bigger deposit.
“In addition, they should seek help from a reputable originator such as BetterLife Home Loans to get home loan pre-approval so they know what they can afford and will be in a better position to negotiate the price with sellers.
“And lastly, they should note that their chances of being approved for a home loan will more than double if they apply through BetterLife Home Loans. Currently, those who apply on their own only have a 34% chance of success, while we are still able to secure approvals for 72% of all applications that we submit by preparing and motivating them correctly.”