The AFCO wouldn't NOT say "You are qualified to make an application but you need to go away and get a degree". We would say "You fulfil the requirement to make your application, this is what you do next..." You DO NOT NEED a degree in order to make an application for pilot, therefore why would we turn a suitably qualified potential applicant away?
With regard to residency, we could not accept a Briish Citizen living in South Africa as he does not fulfil the residency requirements. He needs to have spent the 5 years prior to making his application living in the UK. As previously mentioned, the only exception to this rile (currently) are students taking gap years. This was clearly stated in a recent Weekly Recruitment Brief which are issued to AFCO's detailing the latest policy changes and the like.
I personally dealt with a case of a potential applicant who was a British citizen but decided to live in Australia for 2 years after doing his A levels. As this was not a gap year, he was ineligible to submit an application under the current regulations.