While rising interest rates are hitting consumers hard, experts say the home finance landscape remains remarkably buoyant. According to Leondard Kondowe, Finance Manager for the Rawson Property Group, lending appetites are strong, with excellent finance rates on offer to those with healthy credit profiles.
“Banks are actually quite motivated to secure qualified bond applicants at the moment,” says Kondowe, “particularly in the first-time purchase space. We’re still seeing loans of 100% to 105% being offered, which means those ready to make the leap into homeownership may not even have to save for a deposit, first.”
While going deposit-free may be an option, Kondowe still urges prospective buyers to save up, if at all possible, before diving in.
“The simple fact is, the higher the loan-to-value ratio – or the higher the percentage of the purchase price the bond covers – the greater the risk to the lender,” he explains. “That means buyers looking for 100% or higher home loans need to present a very stable financial picture, and will still find themselves getting much higher interest rate offers than if they’d saved for a deposit first.”
Those willing and able to put down a typical 10% or higher deposit, on the other hand, represent a far less risky investment for lenders. As a result, they may find it easier to qualify for home finance, and receive finance offers at more favourable interest rates.
But what is a favourable offer in today’s lending climate?
“At the moment, the vast majority of home loans are securing below-prime rates,” says Kondowe. “It’s extremely rare for a bank to go above prime at the moment, although the higher percentage loans are coming close.”
Just because lenders are eager doesn’t mean buyers don’t have their work cut out for them, though.
“The biggest hurdle we’re facing at the moment is affordability,” says Kondowe. “An applicant who had enough secure, disposable income to qualify for a R1million bond a few months ago may now qualify for much less – not because of anything happening with lenders, but rather because the average South African’s daily expenses have raised so much that their disposable income is now significantly reduced.”
Between the rising cost of things like credit card debt and vehicle finance, the increasing expense of fuel and groceries, and poor salary growth, it’s no surprise that South Africans are feeling the pinch. This hasn’t only affected new bond applicants, but also those paying off existing home loans.
For example, someone paying R7,675 per month on a R1million home loan, mid-2020, would now be paying 9,390 per month. That’s almost R2,000 extra to find in the budget, every month.
“There’s no doubt that bond repayments have become a struggle for some homeowners,” says Kondowe. “As bond originators, we’re sometimes able to advise struggling bondholders on ways to restructure their personal finances to free up capital for their bond. When this isn’t possible, or the results aren’t significant enough, however, it’s essential that bondholders approach their lender directly, and as quickly as possible.”
Kondowe says lenders are typically very willing to offer compromises. However, he urges bondholders not to mistake this helpful attitude for general leniency.
“It’s absolutely critical that bondholders honour the new agreements they make with their lenders,” he says. “Not doing so risks adversely impacting your credit rating, and could see your new agreement revoked entirely.”
Of course, it’s far better to avoid getting into these kinds of circumstances in the first place. That’s not always easy as a newcomer to the world of home finance, but can be more achievable with the help of free services like prequalification.
“Prequalification isn’t just about getting a piece of paper to strengthen your offer to purchase,” says Kondowe. “It’s also about gaining insight into your finances, polishing your credit record, empowering yourself with accurate information, and making better financial decisions as a result.”
