Banks tighten mortgage screws

What you can expect to score if you're buying for under R1m or over R4m.

It's getting a lot more difficult for people to score property finance these days, with banks turning customers away in their droves and increasingly expecting deposits.

The country's largest mortgage originator, ooba, said on Monday that South Africa's biggest banks are declining home loan applications far more this year than last year.

And bank managers say your mortgage application is more likely to be approved if you put your own money into a deal in the form of a cash deposit.

Not so long ago, it was easy to get finance for the maximum purchase price of a property. Banks were even generous with mortgages of more than that, in order to help buyers pay for the costs associated with buying property.

But, as sales volumes shrink and with property price growth under pressure, banks are getting more cautious.

Ooba chief executive Saul Geffen said banks' decline ratios have jumped to 43%, up from 33% of all applications in May last year.

However, up to 40% of applications rejected by one bank are approved by another, ooba's statistics show.

The highest levels of declines are in three categories, said Geffen:

  • For people with gross incomes of between R10 000 and R20 000/month;
  • Those applying for loan amounts between R250 000 and R500 000; and
  • Those looking to buy property in the R400 000 to R1m price range.

In addition, Geffen noted that interest rate concessions - the discount you get compared to the prime interest rate, which is 15% - have also shrunk.

For the six months to May 2007, the median rate concession was 1,55%; in April this year it was 1,4%.

Geffen said there are "large variances in the interest rate concession given between the banks, even on the same home loan application". Half-a-percent is a "significant difference and getting the wrong rate can mean adding a huge amount to the total cost of the loan and your monthly repayments," he cautioned.

FNB's head of strategic credit Dawie Spangenberg said his bank is still considering 100% bonds and does not necessarily require a deposit. "However, a client applying with a deposit is much more likely to be approved and to receive a competitive rate."

He said first-time home buyers are "encouraged" to save enough money to pay for the transaction costs from savings. "This is to ensure that they have adjusted their household budget to allow for the increase in monthly commitments once the bond is registered."

Absa's Home Loans spokesperson Gavin Opperman told Realestateweb.co.za that the bank is asking buyers of properties of R4m and more to put down deposits of 15%.

However, for homes with a value of up to R800 000 individuals are still qualifying for 100% loans, and for affordable housing costs are still being included with packages.

For properties worth between R800 000 to R2,7m, loans that equate to 95% of a property's value are being granted.

For properties between R2,7m to R4m, buyers must put down a minimum deposit of 10%.

For land, a 25% deposit is required.

Opperman denied that the bank was concerned about customers getting into a situation of negative equity - where a property is worth less than what you pay for it.

Property is a medium to long-term investment and an appreciating asset, he said.

Of course there are forced sales, said Opperman, but these are exceptions.

He urged speculators to be wary, as they could get their fingers burnt, and said all buyers should factor in some spare capacity into their financial planning to ensure they can keep up with repayments if interest rates keep rising.

The number of defaulting clients has increased lately, he said.

Meanwhile, the market of properties worth R15m and more is generally thought to be "immune" to interest rate rises.

Absa expects another interest rate hike soon and is expecting 5% growth in real terms this year and 3,5% growth in real terms next year out of the residential market.

Article by : Jackie Cameron - www.sapropertyinvestor.co.za