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Banks anticipate busy loan market

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Leading financial institutions believe recent positive signs in the country will push more prospective home buyers to apply for, and be granted, bonds

South Africa’s major lenders say more home loan applications will probably be made and approved in coming months as the country’s appetite for home ownership coincides with an improvement in what households can afford.

This is against a backdrop of an expected rise in consumer confidence and property market sentiment, and lower interest rates.

According to Nondumiso Ncapai, head of customer strategy and engagement at Absa Home Loans, some property market indicators had already improved in the first three months of this year. The time properties remained on the market went down to 14 weeks from 17 in Q4 last year, and the percentage of properties sold below asking price went down to 91% from 95%. Furthermore, the percentage drop in asking prices improved to 8.2% from 9.8%.

“If consumer confidence and property market sentiment show marked improvement from current levels, these indicators will probably also increase further, with an eventual positive effect on growth in mortgage advances. 

Mortgage balances growth remained relatively low up to February this year, but growth
may gradually improve during the course of the year – Nondumiso Ncapai, Head of Customer Strategy and Engagement at Absa Home Loans Picture: Supplied

“Mortgage balances growth remained relatively low up to February 2018 but growth may gradually improve during the course of the year.”

Standard Bank property economist Siphamandla Mkhwanazi says that based on a turn-around in consumer and business confidence sentiment alone, the appetite for financial commitments, such as houses and cars, should return to the market in the coming months.

“By extension, this should translate into an appetite for credit and therefore more applications.”

In addition to the household debt-to-income ratio declining to around 71% of disposable income by year-end from 85.7% in 2008, Ncapai says interest rates were cut in mid-2017 as well as last month, providing more financial relief to consumers.

Standard Bank property economist Siphamandla Mkhwanazi Picture: Supplied

“Inflation dropped to 4% in February 2018, largely as a result of declining food price inflation for some time, and a drop in fuel prices in the first two months of the year.

“However, tax hikes announced in the 2018 Budget and a hike in fuel prices next month will impact consumers’ affordability over the short to medium term.”

Despite this, Mkhwanazi believes affordability will improve this year on the back of moderating inflation, lower interest rates and stable real household incomes. He also notes the impact of declining debt-to-income ratios over the past 10 years.

“Theoretically speaking, consumers have over the past decade been building capacity to take on more credit. At a disaggregated level, this capacity varies depending on individual circumstances. Overall, we should see improved purchasing activity in 2018 versus 2016 and 2017.”

Nedbank also foresees positive market activity in the coming months. Thozama Mochadibana, head of customer experience at Nedbank Home Loans, says: “Nedbank Home Loans have observed stable trends with respect to market activity, affordability and credit worthiness during 2018.

“We do, however, expect further improvement given positive sentiment in the market on the back of the recent reduction in the prime lending rate.”

With the renewed optimism, Rudi Botha, chief executive of bond originator BetterBond, says banks are competing for new home loan business and prudent home buyers are benefiting. According to the company’s statistics, the average approved bond size in the country is 6.05% higher than it was 12 months ago, even though the average house price has risen only 2.85% in the same period.

Experts believe home affordability will improve this year. Picture: Ben Garratt

“This corresponds to a drop in deposit levels, from around 22.5% of purchase price at the end of February last year to an average of just under 20% at the moment, which makes it easier and more affordable for home buyers to qualify for a home loan.”

But this does not mean banks have, or will, relax their credit qualification criteria, he cautions.

“The percentage of applications declined outright due to credit record problems dropped from 27% to 23% over the past year, but South Africa’s economic recovery is still tenuous, and households are still vulnerable to sudden cost increases or emergencies. Lenders know this and are being careful not to make hasty bond approval decisions that would put both borrowers and themselves at risk.”

The rejection rate of all credit applications at all lenders in the country, including but not limited to home loans, was 51% in late 2017. This is in comparison to 60% in early 2014, Ncapai says.

FNB’s property economist John Loos. Picture: Supplied

FNB warns that improved domestic sentiment and a rise in activity in the property market could see this improvement in affordability levels stalling in the second half of the year. According to the bank’s property economist, John Loos, this is because the currently positive situation could translate into faster house-price growth, possibly even slightly above 5%. If it does, it would bring this growth close to the growth of income levels.

“This would virtually stop the declining trend.”

All the latest mortgage figures

According to the National Credit Regulator: 

● The value of mortgages granted increased by 10.10% quarter-on-quarter from R37.54 billion in Q3 to R41.33bn in Q4. This was also a year-on-year increase of 10.68%. 

● Home loans worth almost R150 million were granted last year, most being in Q4 when bonds to the value of more than R41m were granted

● Properties valued at R700 000 accounted for bonds totalling more than R119m.

● More than 150 000 bonds were granted in 2017, with 41 602 in Q4.

● More than 76 000 bonds were granted for properties valued at R700 000 and higher.

● More than 98% of home loans were granted to those earning more than R15 000 a month.

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