Why Getting a Home Loan Is Still so Tough

Although it has levelled out recently, the affordability of housing is still very far ahead of where it was during the last property boom, according to ABSA’s latest Housing Review.

This shows, for example, that although the average middle segment house price has risen from R1,036 million to R1,166 million in the past four years, the mortgage repayment/ household disposable income ratio has actually declined since then, as a result of interest rates coming down as household incomes went up.

Indeed, ABSA notes, monthly mortgage repayments are in fact about 35 lower now than they were at the start of 2009, when the mortgage interest rate was 15,5%, compared to the current 9%.

At the same time, figures from mortgage originator BetterBond reveal that the average percentage of purchase price required by the banks as a deposit has continued to decline since the  recession, averaging 18,9% in the year to end-February compared with 19,4% the year before.

So why is it that mortgage lending, as per the latest Reserve Bank figures, is only growing by about 2,5% a year? Why is it still such a struggle for so many buyers to get home loan approval?

Well, frankly, it’s because the other side of the household finance picture doesn’t look so great. For a start, incomes haven’t grown that much – only about 2% in real terms last year – and consumers have had to deal with very large and continuous increases in the cost of transport, electricity, the likes of new road tolls and other necessities in the past few years, which have really hampered their ability to either reduce their debts or add to their savings.  

As a result, the household debt to disposable income ratio is now stuck at around 75% and the household savings to disposable income ratio remains at 0.

Meanwhile, an increasing number of consumers are struggling to meet all their debt obligations, as evidenced by the latest stats from the National Credit Regulator. These show that 48% or almost half of South Africa’s credit active consumers had impaired credit records at the end of last year, with an average of about two impaired accounts each.

The National Credit Regulator's records also show that some 70 000 borrowers are currently more than 90 days in arrears with their home loans. And while the total R38 billion they owe is only about 5% of the current total R810 billion home loans “book”, banks are obviously concerned that the situation could worsen as interest rates start to rise this year.

In short, “caution” is likely to remain their watchword, no matter how much housing demand increases.