Johannesburg - Almost two-thirds of all home loan applications are currently being rejected by banks, a trend that could further strangle the housing market.

Market conditions are, however, such that banks will not relax their lending criteria soon.

The percentage of home loan applications turned down leapt to 61.2% in February, compared with 41.3% in February last year, according to the latest figures from ooba (formerly MortgageSA). This represents an increase of 19.9 percentage points

At the same time the proportion of applications declined by one bank but approved by another fell to 20.3%, compared with 38.6% in February last year.

"Banks have tightened their lending criteria even more since December last year, and if these criteria are not relaxed soon, the housing market will be under further strain," observes ooba chief executive Saul Geffen.

He says banks are demanding significantly higher deposits. The average deposit as a percentage of the purchase price was 24.1% (R200 248) in February, compared with 16.4% (R137 307) last year.

Property analyst and valuer Erwin Rode of Erwin Rode & Associates says prospective buyers will have to save for a deposit as they did 30 years ago.

According to ooba the average purchase price was R827 553 in February, compared with R833 461 in 2008.

Absa's group managing executive for securitised loans in the retail division, Gavin Opperman, says the bank will not be relaxing its mortgage lending criteria before the end of the year, or even the beginning of next year.

"The impact of global and local economic conditions is still rippling through the market and at this stage banks have to adopt a conservative and cautious approach to mortgage lending."

- Sake24.com

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