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In South Africa, the dream of owning a home is becoming increasingly elusive for many people, as only 16% of those who want to buy a house have the savings necessary to apply for a loan. This statistic highlights the dire state of the country's housing market, and the challenges that many South Africans face in accessing affordable housing.
This and other worrying results were taken from the last First National Bank (FNB) Property Barometer. The survey shows a scenario with desperate buyers which are resorting to entering into different kinds of loans so they can be considered admissible for a mortgage.
At the same time, the Barometer reveals an increase in the number of potential buyers applying to the Government’s Finance-linked individual Subsidy Programme (FLISP).
As it was explained by Siphamandla Mkhwanazi, a FNB Property economist, 73% of first-time buyers are using bonds of 100% as their principal source of funds to get their homes. This percentage, obtained at Q4 2022, has increased from Q4 2021.
In the words of Mkhwanazi, “As affordability becomes more stretched, we expect home buying activity to decrease in the coming months. In particular, the steep interest rate hiking cycle and elevated inflation have eroded affordability, making it difficult for buyers to save enough for a down payment”.
Why is it so hard to apply for a mortgage?
There are a number of factors that have contributed to this situation. One of the most significant is the high levels of unemployment and poverty in the country. South Africa has one of the highest unemployment rates in the world, with more than a third of the population out of work. This means that many people simply do not have the financial resources to save for a down payment on a house, let alone qualify for a mortgage.
Another factor that contributes to the low rate of home ownership in South Africa is the high cost of credit. Interest rates on mortgages are typically higher than in other countries, which makes it more difficult for people to qualify for loans. In addition, many banks require large down payments and have strict requirements for creditworthiness, which further limits the pool of potential borrowers.
For that matter, the study revealed a trend that had not been noticed by the end of 2021 but, a year later, was being used by 5% of buyers: taking personal loans from banks to help them secure mortgages or achieve the initial payments. “Anecdotal evidence suggests that some first-time buyers have turned to unsecured lending to fund their upfront deposit. Additionally, there has been an increase in reliance on government subsidy programs such as Flisp to help these buyers enter the market.” explained the economist.
The main point to consider before entering into this option, is the fact that interest rates applied at online loans or other personal credits are usually higher than mortgage rates. Then, by the time the buyer's mortgage is approved, he will be forced to pay two different quotes: the personal one, and the property one.
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