If you’re trying to buy property for the first time, you may need to cut your spending to the bone and divert every spare rand into paying off debt, because affordability for first-time buyers is getting tighter.

The average home price being paid by first-time buyers has risen by a modest R37 000 in the past 12 months, but the average home-loan instalment has gone up by almost R700 a month, despite the fact that buyers are paying bigger deposits than they did a year ago.

This is according to statistics from BetterLife Home Loans, South Africa’s biggest mortgage originator.

These statistics represent “a clear decline in affordability for first-time buyers”, who should make a decision to buy as soon as possible, because it is going to become increasingly difficult for them to become homeowners in the next 12 to 18 months, even if there are no further interest rate increases, Shaun Rademeyer, the chief executive of BetterLife Home Loans, says.

“Our latest statistics show that, while the average first-time-buyer home price has risen by 5.7 percent in the past 12 months, the average percentage of purchase price being paid as a deposit by such buyers has risen from 11.1 percent to 12.3 percent, taking the actual rand amount of the average deposit in this sector from R79 000 to R92 000.”

One would expect this to have lowered the average monthly bond repayment for first-time buyers, but there were three interest rate increases in the past 12 months, which caused the variable home loan rate to move from 9.5 percent to 10.5 percent, and the result has been an increase of almost R700 in the average instalment, Rademeyer says.

Home prices have continued to rise, albeit slowly, and are set to keep rising, particularly now that South Africa has escaped a ratings downgrade and consumer and business confidence is staring to rise again, he says. This means that prospective buyers are going to need bigger household incomes to qualify for home loans in the coming months, Rademeyer says.

“As it is, the average first-time buyer who pays a deposit requires a household after-tax income of at least R22 000 a month to qualify – almost 13 percent more than was needed a year ago, and obviously most people are not getting salary increases of this magnitude in the current economic climate.”

Even if they did, it might not be enough, Rademeyer says. “The rising costs of food, transport, electricity and other necessities have eaten into household disposable incomes in the past year, leaving many aspirant buyers without savings and without sufficient ‘discretionary’ income, in terms of the National Credit Act, to afford a monthly home loan repayment.

“In addition, South African consumers have been warned that they will be paying more tax in 2017, while banks are likely to apply even stricter credit granting criteria in the light of the rising unemployment numbers and the increased risk of default.”

The clear message, he says, is that first-time buyers should not delay making the leap into homeownership, even if they have to downscale their aspirations and buy a smaller, less expensive home to start with.

He says that, while the percentage of home loan applications submitted by first-time buyers has risen slightly in the past 12 months, the percentage of home loans granted to such buyers has remained constant at about 35 percent because of the decline in affordability.

For those who are preparing to buy, Rademeyer says there is only one way to counter declining affordability in the coming months: aggressively lower household debt levels by cutting spending to the bone and divert every spare rand into paying off high-interest rate store and credit card balances, vehicle loans and, above all, any personal loans, as soon as possible.

“After that, buyers who want to give themselves the best chance of being approved for a home loan should apply through a reputable mortgage originator.” 

He says BetterLife Home Loans secures approvals for 72 percent of all applications submitted to the banks, “while the general rate of approval is only one in three applications”.