Banks tighten home loans as deposits climb higher

• Banks are demanding larger deposits despite lower interest rates and improving affordability for homebuyers.
• Stronger financial profiles and bigger deposits improve bond approval chances and secure better lending rates.
• Homeownership remains achievable with careful planning, expert guidance and realistic affordability assessments.

Lower interest rates help buyers, but bigger deposits are the new challenge

South Africa's residential property market continues to show encouraging resilience, supported by lower interest rates and improving buyer confidence.

However, while borrowing has become more affordable, prospective homeowners are facing a different hurdle. Banks are increasingly requiring larger deposits as they adopt a more cautious approach to lending amid ongoing economic uncertainty, inflationary pressures and global market volatility.

According to Bradd Bendall, National Head of Sales at BetterBond, deposit requirements have become one of the biggest obstacles facing today's buyers.

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"Banks have become increasingly cautious amid ongoing economic uncertainty and inflationary pressures. While deposit requirements did not rise significantly in May, the average deposit required from buyers during the second quarter of this year was 21% higher than a year ago."

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At the same time, rising house prices are adding further pressure. BetterBond's latest Property Brief shows average house prices increased by 8.6% year-on-year, while prices paid by first-time buyers rose 9%, comfortably ahead of inflation.

The average purchase price now exceeds R1.7 million for all buyers, while first-time buyers are paying an average of R1.4 million.

Banks are lending more carefully

Although South Africa's major banks remain financially healthy, they are becoming increasingly selective when approving new home loans.

Financial institutions continue to report strong earnings and healthier loan books, with default loans falling by around 15% since 2020. Yet economic uncertainty continues influencing lending decisions.

Rather than expanding lending aggressively, many banks are strengthening their risk management strategies by requiring larger deposits and placing greater emphasis on borrowers' financial strength.

According to Bendall, the industry had hoped banks would adopt a more accommodative approach following recent interest rate relief, but lenders remain cautious.

How banks assess risk‍

Home loan approval is based on far more than income alone.

Banks evaluate a combination of factors including:

• Deposit size.
• Affordability.
• Employment and income stability.
• Existing debt levels.
• Credit history.
• Overall financial behaviour.

A larger deposit immediately reduces the lender's exposure while demonstrating financial discipline and commitment from the buyer.

BetterBond recommends buyers aim to save at least 10% of the purchase price before applying for a bond. For someone purchasing the average first-time buyer home priced at R1.4 million, this equates to approximately R140,000.

With deposit requirements increasing by 7.3% for first-time buyers, that amount rises to approximately R150,220, requiring buyers to save an additional R10,220 before entering the market.

How buyers can overcome the challenge

Although higher deposit requirements create additional pressure, they should not discourage prospective homeowners.

In fact, larger deposits provide several long-term financial advantages. By borrowing less, buyers reduce their monthly repayments while significantly lowering the total interest paid over the life of the loan.

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Larger deposits also improve negotiating power with banks. "The higher the deposit, the better the chance of securing a bond because it signals to banks that a buyer presents a lower lending risk," says Bendall.

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"They are therefore more likely to offer a more competitive interest rate." Rather than viewing higher deposits purely as an obstacle, buyers should see them as an investment in stronger long-term affordability.

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Improving your chances of bond approval‍

Preparation has become more important than ever.

Bendall encourages buyers to begin with a realistic assessment of affordability before searching for property.

As a general guideline, monthly bond repayments should not exceed 30% of gross monthly income. He also recommends obtaining professional assistance early in the buying process.

Working with a bond originator enables buyers to submit one application to multiple banks simultaneously. This significantly improves the chances of approval while creating competition between lenders.

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"While one bank may insist on a 10% or even 15% deposit based on its current lending appetite, another may still be prepared to offer a 100% home loan to the same applicant."

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Accessing multiple lenders increases the likelihood of securing a more favourable interest rate and lending package.

Demand remains strong

Despite tighter lending criteria, South Africa's housing market continues demonstrating resilience.

Although higher deposit requirements contributed to a slight decline in bond applications during May, overall demand remains well above recent years.

Applications submitted between April and June were 12% higher than those recorded in early 2020 and 12.5% above the lows experienced during the interest rate hiking cycle that began in late 2021.

These figures suggest buyers remain committed to entering the market despite changing lending conditions.

Homeownership is still within reach

While larger deposits have undoubtedly raised the bar for many aspiring homeowners, they have not closed the door to property ownership.

Instead, today's market rewards preparation, financial discipline and informed decision-making.

Buyers who strengthen their financial profile, build meaningful deposits, understand their affordability and seek expert guidance continue to secure competitive finance and successfully enter the market.

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As Bendall concludes: "Housing demand remains strong, and while the market is adjusting to changing lending conditions, buyers who plan carefully, strengthen their financial position and seek expert guidance can still realise their homeownership aspirations."

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For prospective homeowners, the message is clear: the path to homeownership may require more planning than before, but it remains firmly within reach.

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