Top trends for home loan approval

View from the R111m mansion. (Seeff)
View from the R111m mansion. (Seeff)

Cape Town - In the increasingly competitive banking environment, it is a good idea for those thinking of buying a property to get themselves pre-approved for a bond, according to Rhys Dyer, CEO of home loan originator ooba.

One of the key trends he sees in the property industry is a much more significant competitive environment in the banking space.

The home loans lending space has become significant in terms of profitability for the banks," he told Fin24. "That competition has been beneficial to the consumer. We have seen a nice comeback as a result of competitiveness."

Affordability, however, remains an important factor because of the Credit Act.

"To qualify for a home loan you need a certain amount of money. So, with the increasing cost of living we see more pressure on bond applicants and our decline rates are up 4%," explained Dyer.

"From a consumer perspective, even if they can afford the property on their current income, banks price the future into the model. So we find buyers do not qualify due to their future down the line. That is why we encourage buyers to buy within their means and to get pre-qualified for a loan before you going house hunting."

Another trend Dyer spotted in the homeloan market is a jump in the number of black applicants. A year ago they were about 43% of those applying for a home loan and has now increased to 48% this year.

Another trend is that first time home buyers now make up 55% of ooba's market. Dyer expects this figure to decrease next year, however.

"Banks are going to try to get more and more of a deposit along with a home loan because of the economy. The self-employed are still a small section of the home loan market and for banks, if you are self-employed when things turn bad, that sector turns bad first. So banks are more cautious now. Some self-employed people even say their employees get loans more easily than they do," continued Dyer.

He said about half of home loan applicants are looking for a 100% home loan, but only about 37% of loans finally approved are for 100% loan. Banks are more and more in favour of people who can pay a deposit.

As for the property market in general, he said there has not sufficient new stock coming into the market for the past few years so demand is increasing despite what economy is doing. He does not expect 2016 to be significantly different.

"The increasing slow economy will slow demand, but we have seen 7% to 8% price increases and expect it to slow to 6% to 7%," he said.

"We will continue to see activity as people want to get onto the property ladder as soon as possible. As an asset class it has delivered a fairly good return and I don't think we will se any significant change in demand over the next 12 months."

As for trends in the profile of property buyers, he said in 2002 56% of buyers were under 40 years old, now it is 44%. Young people are staying at home longer and renting for longer so those over 50 years old are becoming increasing greater property drivers.

Another trend has been a shift back to fewer freehold properties because of the maintenance required.

"The younger generation is quite happy to have flats and be close to work. The change from big gardens in the suburbs from a security perspective can also be clearly seen," he said.

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