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Monday May 28, 2012

First-time property buyers 'need to be better prepared'

First time home buyers currently account for 31 percent of all home loan grants, but their numbers are declining and they are clearly having to work harder and prepare better to get into the market.

That's the word from Rudi Botha, chief executive of mortgage originator Betterbond.

Botha says: "Even though deposit requirements are considerably lower than a year ago, and even though first-time buyers are buying less expensive homes, we have seen a drop in the number of applications in the past year, and a corresponding drop in the percentage of bond grants that are going to first-time buyers."

The Betterbond statistics represent 25 percent of all residential mortgage bonds being registered in the Deeds Office and include applications to and bond grants from all the major lending banks. They show that in April the average percentage of the price that first-time buyers were required to pay as a deposit was 10.1 percent, compared to the 15 percent required a year earlier.

They also show that the average home price for first-time buyers applying for home loans in April was R593 468, or 4.8 percent less than the R623 592 average recorded in April 2011. This could mean, says Botha, that first-time buyers are setting their sights lower and opting for less expensive homes to meet the banks' strict criteria.

"What it definitely does mean is that, in rand terms, the average deposit amount required of first-time buyers has dropped from R93 435 to R60 475.

"This is much lower than the average 13 percent required of most buyers in the R500 000 to R1m price bracket.

"What is more, a home at the current average first-time buyer price would attract no transfer duty, so the amount of cash they would need to complete the transaction is considerably less than a year ago," Botha says.

And yet, he says, the percentage of home loan applications being made by first-time buyers has dropped f r om 49 percent a year ago to 40 percent now, whereas the percentage of bond grants going to first- time buyers has fallen from 41 percent to 31 percent.

"This is obviously still a large number, and indicates that there is still strong demand among first-time buyers, but it also shows that they need to be increasingly well-prepared financially before applying for home loans.

"To start with, interest rate concessions are a thing of the past, which affects calculations, so first- time buyers should try to save the biggest deposit possible.

"They may also find it easier going if they can get their parents to sign surety for them or to be co-applicants for the loans, which is a growing trend worldwide.

"And, of course, they must make sure that their credit records are spotless, with all accounts paid on time and up to date.

"If there are black marks, even for minor problems, they will find it is really worth taking the time to sort these out before applying for home loans."

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