What SA banks say about raising the deposit requirements for home loans

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South Africa’s major financial institutions have responded to claims that they have started to raise deposit requirements for home loan applications in recent months amid an economic slump.

Shaun Rademeyer, CEO of mortgage originator, BetterLife Home Loans, noted that banks are applying strict affordability criteria in terms of the National Credit Act, “with the result that most buyers now require a bigger percentage of the purchase price as a deposit than they did a year ago”.

The main reason for this change, according to Rademeyer, is the steady rise in interest rates, which has pushed up the monthly repayments on all kinds of debt.

He said that after paying all their monthly bills, South Africans do not have enough disposable income left to comfortably afford a bond repayment.

As a result, banks are being forced to restrict the size of loans they make – with the result that prospective buyers must either purchase less expensive properties or put down bigger deposits, the mortgage originator said.

Average deposit required per price category – BetterLife Home Loans data

# Purchase price Av deposit 12-months Maximum % of purchase price
1 R0 – R250,000 R17,205
2 R250,000 – R500,000 R30,638 12.3%
3 R500,000 – R1 million R93,371 18.7%
4 R1 million – R1.5 million R222,353 22.2%
5 R1.5 million – R2.5 million R432,277 28.8%

SA banks respond

Tommy Nel, head of credit and pricing at FNB Home Loans:

“I can confirm that FNB Home Loans have not tightened up on deposit requirements in the last couple of months.

“I would imagine that the numbers in the article reflects the average deposits the clients put down. This does not necessarily mean that there was insistence from the banks for levels of deposits at these levels.

“Some customers choose to put down deposits as they probably know that in doing so they maximise their chances of getting the lowest interest rate on their home loan.”

Speaking as a property analyst and not for FNB specifically, John Loos, household and property sector strategist at FNB, said that the Ooba data for May doesn’t point to an increase in the average deposit, percentage-wise, for the industry as a whole.

“They have it at 9.2% for May, while in March and April it was 14.5% and 13.1% respectively.”

Jacques du Toit, property analyst Absa Home Loans:

“I am not in apposition to comment on trends in our own business.

“If there are fewer bonds being approved, it can be a combination of weakening economic conditions, increased financial pressure and vulnerability on the side of consumers, low consumer confidence, strict lending criteria prescribed by the NCA, and banks adjusting risk appetites and lending criteria accordingly.

“Based on SA Reserve Bank data, the value of mortgage bonds granted by banks in respect of residential property dropped by 13.8% year-on-year in the first quarter of the year, which may be the result of the above mentioned factors.”

“However, it may also be a case of home buyers focusing on more affordable and cheaper property than a year ago in view of the state of and trends in their finances, with the effect that the average and eventual total value of mortgage loans granted trending lower compared with 12 months ago.

“Higher deposits than a year ago may also be the result of home buyers realising the financial impact of huge mortgages and trying to limit the effect of further interest rate hikes on their cash flow over the short to medium term when buying property.”

Tim Akinnusi, head of sales and client management at Nedbank Home Loans:

“Nedbank Home Loans reviews and amends its lending criteria on an ongoing basis, however we have not made significant changes with regard to our deposit requirements in recent times.”

Standard Bank did not respond to BusinessTech by the time of writing.

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