Home loan applications have declined by up to 25 percent in the past year but the vast majority of South Africans who have applied have been approved.
Lenders are aiding homebuyers in the tough market by offering competitive rates, while low house price growth is making it more affordable to buy property.
More than 80 percent of home loan applications are being approved, according to ooba Home Loan statistics for Q3 2023.
Despite the decision by the Reserve Bank to leave interest rates unchanged at the past two MPC meetings, Rhys Dyer, chief executive of ooba Home Loans, says an increase in the average deposit value signals that homebuyers have also adopted a cautious approach when taking up elevated levels of debt.
“The banks’ willingness to continue to offer competitive rates, with an average rate below prime, paints a positive outlook for the property sector at the peak of the interest rate cycle,” he adds.
As an example, the average interest rate awarded to ooba customers in Q3 ‘23 was recorded at 14 basis points cheaper than Q3 ’22 – now at 0.44 percent below prime.
“This should assist buying activity in the market, particularly among homebuyers with good credit scores and a deposit-backed applications.”
The average bank approval rate for the bond originator’s applicants continues to hold steady at 82.9 percent, a figure that is, however, marginally lower than the 83.6 percent recorded in Q3 ’22.
Other findings include:
- The average approved bond size is up by 0.9 percent, coming in at R1,285,772
- The average approved bond size for first-time buyers is up by 0.3 percent at R1,002,349
Dyer says this low growth is attributed to:
- slowing property price growth
- buyers, particular first-time buyers, choosing to put down higher deposits
- customers choosing properties that they can afford in this higher interest rate and loan repayment market.
Fewer South Africans applying for home loans
While approval rates and interest rate concessions remain resilient, there is a significant reduction in home loan applications year-on-year. This is largely attributed to lower demand for property due to weakening economic conditions, higher costs of living, and increased interest rates, ooba data reveals.
The volume of home loan applications recorded in Q3 ‘23 has declined by 25 percent year-on-year, and is down by 28 percent from Q3 ’21, before the start of the rates hiking cycle.
Statistics from BetterBond and RE/MAX show that applications are down by 20 percent from Q3 ’22.
Subdued house price inflation favours homebuyers
The average purchase price paid by homebuyers is beginning to show nominal year-on-year growth with an increase of 1.5 percent to an average of R1,423,663. This is compared to R1,402,408 in the previous quarter. Growth in the average purchase price paid by first-time homebuyers is up 2.7 percent year-on-year, now at R1,116,672.
“While subdued house price inflation is a symptom of the contraction of the property market, it does provide more affordable opportunities for homebuyers to acquire property,” Dyer says.
Home loan instalments increase due to interest rate hikes
The effects of a high interest rate environment are clearly depicted in ooba’s data, which show an increase in instalment amounts as a percentage of gross income – up from 18.4 percent at the start of 2021 to 20.7 percent in Q3 ’23. For joint homebuyers, proposed instalments have risen from 16.4 percent of gross income to 18.0 percent.
“This represents an increase of 230 basis points for individuals and 160 basis points for joint homebuyers.”
The silver living, however, is that instalment payments remain “comfortably below” the industry benchmark of 30 percent, suggesting that homebuyers applying for a mortgage are not as financially stretched as some would anticipate.
Buyers are putting down bigger deposits
Dyer says homebuyers understand that in a high interest rate environment, bigger deposits help to reduce their monthly repayments and secure better interest rates on their home loans. This is evident in the continued growth of deposits among both first-time and second-time homebuyers.
The average deposit for Q3 ’23 was recorded at 9.7 percent of the purchase price – up by 6.6 percent year-on-year. The first-time homebuyers’ segment also recorded a major increase in deposits – up a staggering 25.9 percent year-on-year, and now 10.2 percent of the average purchase price.
Applications for zero deposit bonds thus continue to decline, and now account for 53.7 percent of ooba Home Loan’s total application intake. This is a drop of just over 10 percent from Q3 ‘22.
“However, approval rates for these applications remain strong.”
First-time buyers holding back
Applications from the more interest rate-sensitive first-time homebuyer have reduced from 54 percent of total applications in Q3 ’20 to 48 percent of all applications processed by ooba during Q3 ‘23. This indicates that, at present, first-time homebuyers who are challenged with affordability constraints are putting their buying plans on hold.
“First-time homebuyers do still make up over half of applications received in the Free State, KwaZulu-Natal, Mpumalanga, and Gauteng South and East Rand – a clear sign that they’re still keen to get a foot on the property ladder.”
The data also shows that first-time homebuyers are getting older, with the average age now 36 compared to 35 last year. But Dyer says this comes as no surprise.
“Homebuyers who continue to prioritise their financial well-being may take longer to enter the property market as they continue saving to build up a healthy deposit.”
While levels of demand have reduced significantly, he believes that we are almost ‘out of the woods’, with home loan demand expecting to increase in the new year when interest rates are expected to soften.
“However, homebuyers should continue to shop around for the best deals on their home loans as well as saving for deposits to curb the effects of interest rate fluctuations.”
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