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Monday Jan 13, 2014

Higher incomes now needed to qualify for bonds

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

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

'This puts the average home loan required to buy such a home at R853 000, and the average monthly bond repayment at just more than R7 400,' says BetterBond chief executive Shaun Rademeyer.

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

'But in terms of the act, banks are obliged to try to stop consumers from becoming over-indebted. When they consider a home loan application they must now also take into account existing debt commitments and regular monthly expenses.

'And because of high household debt levels and the rising costs of food, transport, utilities, health care and education, most prospective home buyers need to have higher earnings now to ensure that there will be a big enough amount free and clear every month to cover their bond instalments.'
Things are a little easier for first-time buyers, says Rademeyer, with the average home price in this sector of the market having risen by just R27 000 in the past year, and deposit requirements having shrunk considerably to between 6 percent and 10 percent.

'What is more, about twothirds of the 100 percent bonds that are being granted go to buyers at the affordable end of the market where most buyers tend to be first-timers.'
In any case, he says, the banks' still-strict lending criteria do 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 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 a 15 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 it secures a bond approval for at least three out of 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.

Weekend Argus (Sunday Edition)


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