Picture: 123RF/DARRYL BROOKS
Picture: 123RF/DARRYL BROOKS

Banks have recently become more willing to grant 100% home loans to buyers who do not have money for a deposit, but you must be 100% sure you can afford to take on this loan if you are offered one, experts caution.

Carl Coetzee, CEO of mortgage originator BetterBond, says over the past few years there has been a steady increase in the number of 100% bonds being approved by banks, though they are selective about who they grant such loans to.

Banks have been relaxing their lending criteria, and as a result roughly 30% of the loans originated by BetterBond over the past year were for the full value of the property being purchased, he says.

According to home loan figures from mortgage originator Ooba, applications from home buyers with deposits continue to have a higher rate of approval than those for 100% bonds, but the banks' approval rate for 100% bonds has increased 4% year on year.

Lanice Steward, the head of training at Pam Golding Properties, says though banks have never refused 100% loans, since about October last year banks are making it more public that they are granting them.

Steward says it is incredibly difficult for a young couple paying rent to save up a deposit of 10% or 20% of the property price.

If you are cautious about not overextending your finances, leave room in your budget to pay more interest should rates go up, and you qualify for a 100% bond, it will give you a better chance to get into the property market and start creating an asset.

BetterBond has also seen some home buyers qualify for up to 105% home loans that cover the cost of the property as well as certain legal costs relating to the transfer of the property. This assists buyers who have not saved up for the costs, says Coetzee.

Geoff Lee, managing executive of home loans at Absa Group, says Absa offers loans of up to 105% to help qualifying buyers cover the costs on top of 100% of the purchase price.

Graphic: NOLO MOIMA
Graphic: NOLO MOIMA

However, Absa currently only offers 105% loans to a very specific segment of first-time home buyers, whose loans make up a small percentage of its overall lending, he says.

When the bank lends you more than the 100% it can recover from the sale of the home if you default, it takes a risk.

You must therefore demonstrate that you can afford the higher level of finance and your ability to afford the loan will be stress-tested to ensure you can sustain the repayments for the duration of the term of the loan, Lee says.

So what kind of lender must you be to quality for a 100% loan? Lee says Absa's lending criteria are based on your risk profile or creditworthiness and your ability to afford the repayments.

The bank will also consider the property you are buying to ensure that it presents acceptable security for the loan, given that the bank is lending in excess of 100%.

It is, however, always advisable to put down a deposit when buying a property as this not only reduces the cost of credit over the term of the loan, it also results in lower monthly repayments because the amount you're borrowing will be lower than the full purchase price, says Lee.

For example, a R2m loan at the prime lending rate of 9.75% over 20 years will cost you about R4.5m over the term. But if you pay a 20% deposit (R400,000) upfront, you will pay about R3.6m over the 20-year term. A 20% deposit will, in this case, save you more than half a million rands in interest.

"Banks are putting their best foot forward" so they will provide the best possible interest rates determined on the overall risk of the deal, Coetzee says.

Steward says banks are competing for your business, which is good reason to shop around for the best rate.

She says the average buyer is being granted an interest rate at prime or prime plus 0.18%.

Those who qualify for a rate less than prime are few and far between. The lowest rate on offer from the banks is prime minus 2%, but such rates are for very special bank clients, says Steward.

Rhys Dyer, CEO of Ooba, says in the latest oobarometer that banks continue to compete for new customers by approving finance at good interest rates.

Ooba's statistics show that the average interest rate on loans it originated in the last quarter of last year was 0.13 percentage points lower than on those in the last quarter of the previous year.

The average interest rate that Ooba achieved for its buyers in the last three months of last year was 0.01 percentage points below prime, compared with 0.12 percentage points above prime in the last quarter of 2018, he says.

Both Steward and Coetzee recommend that you request pre-qualification from a mortgage originator or bank before you go property hunting.

Among his tips for prospective buyers, Coetzee suggests you maintain a good credit record by paying all your debts on time every month; save as much as you possibly can for a deposit as this increases the possibility of qualifying for a loan; and save up for the purchase costs.


Rates down but prices may rise

The unexpected 0.25 percentage point cut in interest rates last week should make your repayments a bit more affordable.

The rates cut equates to a saving of about R190 on the monthly repayment of a R1m loan, according to Carl Coetzee, CEO of mortgage originator BetterBond.

Sanisha Packirisamy, an economist at Momentum Investments, says while Moody's is expected in its March ratings review to advise against the Reserve Bank's monetary policy committee cutting interest rates again that month, a further cut later in the year is possible.

However, home buyers are warned to watch out for rising prices in the residential property market.

Pam Golding Property Group CEO Andrew Golding says despite SA's ongoing economic challenges, including the restart of load-shedding, there are "signs of green shoots in the residential property market".

After a period of correction with regard to house prices, home buyers are seeing the market in a positive light, he says. This is further buoyed by financial institutions' robust appetite for lending, which is enabling more aspirant buyers to gain a foothold on the property ladder.