ABSA raises home loan deposits

Absa, South Africa's largest bank, has announced an increase in the deposit that potential home buyers must pay when asking for a home loan, reports Mike Spencer of Platinum Global real estate group.

From Property24, 14 May 2008
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Before 1999 all banks insisted that home buyers contribute something as a deposit when buying a home. Previously this was a 20% deposit across the board. As the house market warmed up in the early part of the twenty-first century banks started to reduce the amount of the deposit required and eventually offered 108% bond which included transfer and bond costs.

Although the banks had been warned by a number of leading estate agents that this was an unhealthy lending policy and could lead to future financial difficulties for homeowners, they have allowed many lenders to take high percentage loans.

Recent strong rises in interest rates has caused considerably affordability problems. With little or no financial involvement in their homes, many homeowners with payment difficulties are feeling that they can simply give their homes back to the bank.

While they may be tempted to do so, it would be an unwise move as it will affect their ability to obtain finance in the future. They should rather consult their lenders and attempt to come to an equitable compromise whereby they continue to pay their loans at the old rate and accumulate unpaid interest until either rates drop or they are able to afford to pay the full instalment.
ABSA has now issued a confirmation that its credit policy is changing with immediate effect. In future, costs will only be available for purchasers of affordable housing (less than R400k and with a total income for the applicant of less than R13k per month).

The bank will continue to consider 100% loans on homes priced at R800k or less.
Properties between R800k and R2,7m will require a minimum of 5% deposit from the buyer. Between R2,7m and R4m will require a minimum of 10% and for over R4m a 20% deposit will be required. These changes take place with immediate effect.

"I have been concerned for some time about these high percentage loans. Fortunately only a few of our clients have elected to take these types of bonds. It is important that buyers should buy within their means and that they should put down the biggest deposit they can together with the transfer and bond registration costs. While the government has eased the transfer duty on property it would help if the level at which no transfer duty was charged was increased say to R800k as this has become the level at which ordinary homes are sold," said Mike Spencer.

"Every incentive should be provided to encourage homeowners to pay off their loans as soon as possible. This could include escalating bond payments so that homeowners effectively get ahead with their bond payments. This would mean that after a year or two it would be possible for individual homeowners to absorb rates changes like those we have recently experienced without having to increase the amount they paid each month".