Basel III, the soon to be implemented new rules on banking capital and liquidity, will undoubtedly make it more difficult and more costly for homebuyers to obtain mortgage finance, Rudi Botha, CEO of BetterBond, SA's biggest bond originator, says.
The average interest rate granted to customers by banks on the R2.4-billion worth of home loans originated by BetterBond in March was now at prime rate, whereas the average four years ago was prime minus 1.5 percent, Botha said.
"With the implementation of the Basel III rules, we and many key industry people expect that the 'standard' home loan interest rate will have to be set one or possibly even two percentage points above prime, because the cost to the banks of funding these loans will rise that much," he said.
Banks could also likely have even less an appetite for long-term lending than they do now, and increasingly prefer to make short-term loans rather than 20-year home loans, according to Botha.
"In short, Basel III means it is going to get even tougher for homebuyers to qualify for home loans in terms of the income requirements and their credit records, and that they are generally going to be able to afford a lower purchase price than they thought."
According to BetterBond, the likely effects of the changes were illustrated by the fact that on a R1-million loan amount at a rate of 10 percent, the monthly repayment would be R9650, compared to R8997 at a rate of 9 percent over 20 years.
The increase in repayment of more than R650 monthly, Botha said, would impact the affordability of the buyer and the total loan obtainable from a repayment-to-income point of view, meaning that the same client would in all likelihood only qualify for a loan amount of R950 000 instead of R1-million.
On a R500 000 loan amount, at a 9 percent interest rate over 20 years, the monthly repayment would be R4498 and at 10 percent, R4825. The increase in repayment being R326 would impact the buyer's affordability, Botha said.
If interest rates were to rise within the next twelve months to 11 percent from the current 9 percent rate, this would result in an increase in the monthly installment on a R500 000 loan from R4499 to R5161, and that on a R1-million loan from R8997 to R10 322, Botha noted.
"In addition, those who are contemplating a home purchase should not delay too long, as the opportunity for them to qualify for the home loan they want will become more difficult should Basel III be implemented in its current format."