Recent statistics point out that South African homebuyers are placing down larger deposits than ever earlier than. This assertion is underpinned by ooba Home Loan’s latest knowledge (This fall ’23), which highlights a 23.7% year-on-year improve within the common deposit paid by first-time homebuyers.
Source: Supplied. Jackie Smith, head of Buyers Trust.
And whereas young patrons prioritising deposits is a constructive development, recent anecdotal proof from the FNB Property Barometer reveals that some homebuyers are taking drastic measures to fund their deposit by taking out a private mortgage.
“According to FNB, around 5% of homebuyers are taking out personal loans to increase their chances of securing a home loan,” shares Jackie Smith, head of Buyers Trust, a cutting-edge bank-hosted deposit resolution for homebuyers.
“Some homebuyers believe that the drawbacks of taking out a personal loan, which are usually charged at a rate well above prime, are outweighed by the long-term financial benefits of being able to put down a sizeable deposit on a property,” she provides.
The largest monetary profit of getting a deposit is that it places you in a greater position to barter a decrease rate of interest from the banks, thereby decreasing your month-to-month repayments and permitting you to repay your home mortgage quicker.
“However, while I am a massive proponent for deposits, I certainly do not advocate for taking out a personal loan to fund a home deposit,” Smith says.
Personal mortgage deposit drawbacks
Homebuyers who’re taking out private loans to fund their deposit are participating in unsecured lending: a mortgage that doesn’t require any sort of collateral and is as an alternative granted primarily based on the creditworthiness of the borrower, as judged by the lender.
“But while you need a good credit score to be approved for a personal loan, even just applying for one can negatively impact your credit score – which will in turn impact your likelihood of being approved for a home loan,” Smith explains.
“Many consumers are unaware that when you apply for a loan, a lender will perform a ‘hard search’, an official enquiry on your credit report. Having more than one ‘hard search’ in 12 months will cause your credit score to dip, because it indicates to lenders an overreliance on credit, even if you don’t end up following through on the personal loan.”
She shares that in case your credit score profile has declined in recent months due to credit score enquiries or taking over extra debt, a financial institution could withdraw their home-loan provide resulting from affordability issues. “As you have not proven your ability to save for a deposit, they could be concerned about your ability to repay simultaneous monthly instalments on a personal loan and a home loan.”
High home-loan approval charges
Taking the disadvantages of utilizing a private mortgage to fund a deposit into consideration, recent shifts in financial institution lending behaviour additionally reveal that whereas having a deposit is a bonus, it’s not essential to safe a home mortgage.
ooba Home Loan statistics reveals that whereas financial institution approval charges for zero-deposit loans have dipped barely in essentially the most recent quarter, their 100% home mortgage prospects have nonetheless achieved a median approval fee of 82.3%. This signifies the banks’ willingness to proceed lending at excessive loan-to-value ranges, regardless of these prospects failing to place down a deposit.
However, Smith cautions patrons to contemplate their affordability fastidiously earlier than speeding to make the most of excessive financial institution approval ranges for zero-deposit loans.
“Zero-deposit home loans are generally charged at a higher interest rate and will take significantly longer to pay off. I would advise prospective homeowners to instead delay your buying plans for a year or two to give you enough time to save for a deposit organically, rather than taking out a personal loan or zero-deposit bond.”
She concludes by saying that when potential homebuyers have put within the arduous work to avoid wasting for a deposit, they’ll maximise their monetary returns by entrusting it to the safe Buyers Trust platform.
“Buyers Trust operates as a free bank guarantee – which would otherwise be a significant cost for the buyer – until the property transfer is complete. It also offers buyers a competitive investment return and full transparency on all interest accrued.”
