The average purchase price for a house in South Africa right now – and bank lending behaviour

The latest data from home loan comparison service Ooba reveals that competition among the major banks in South Africa continues to surge.

Home loan approval rates were up by 3.1% from Q4 of 2020 and the average interest rate received by home applicants was prime less 0.21% (19 basis points lower than Q4).

Ooba said that competition among the major banks for a bigger share of the home loan market remained fierce during the fourth quarter of 2021 (Q4 21). Banks continued to compete for business through strong interest rate discounts, while simultaneously approving more bonds with lower deposit requirements, creating advantageous lending conditions for home loan applicants, it said.

“The average interest rate achieved for customers measured by the Oobarometer was prime less 0.21%, 19 basis points lower than Q4 20’s rate of prime less 0.02%,” said Rhys Dyer, CEO of Ooba.

“Our statistics also show that second-time home buyers who, unlike first-time buyers, have access to a deposit are enjoying even more favourable rate discounts. During 2021 the average interest rate achieved in this segment was prime less 0.42%. These statistics show that banks are pricing more affordably, which improves approval rates from banks.”

He said that the Oobarometer also shows a 1.6% improvement in the percentage of applications that are declined by one bank but approved by another. In Q4 2021, almost half of the applications that were declined initially by one bank were subsequently approved by another bank.

Ooba’s data showed the following:

  • The Average Purchase Price increased by 3% year-on-year to end 2021 at R1,389,715.
  • The Average Purchase Price for first-time buyers fared even better with a 4.7% increase to end the year at R1,140,749.
  • The Average Property Price in the Western Cape was R1,898,490 for 2021, the highest in the country.

Ooba’s statistics show a well above inflation average purchase price growth of 9.4% during 2021, with an annual growth rate of 8.3% recorded in the average purchase price for first-time buyers. This is a clear indication of buyers utilising the lower interest rates to buy larger properties, said Dyer.

During the same time period, Ooba said the average bond size increased by 5.5% while the average deposit as a percentage of the purchase price fell by 23.9%, indicating the willingness of banks to offer home loans with more favourable conditions.

Dyer pointed to interesting buying trends. “Properties in the Free State showed the highest year on year price growth of 15%. However, this growth is off a base of the lowest average property price in the country, which breached the million-rand mark for the first time in 2021 at R1,016,189. The average property price for first-time homebuyers was R891,208.”

While the average property price in the Western Cape is the highest in the country, properties there showed relatively lower growth rates of 7% overall and 6% for first-time buyers. North West Gauteng showed the lowest growth rates of 5% overall and 4% for first-time buyers but has the second-highest average purchase price at R1 524 976 for the year, said Dyer.

“Whilst property price growth in the Western Cape and North West Gauteng have moderated, our statistics show that the demand for luxury properties above R3 million has increased. 22% of Ooba’s granted home loans during 2021 fell into this luxury market, which is a growth of almost 7% since the cost of borrowing dropped significantly in May 20.

Looking ahead at the property market in 2022, Dyer said he expects interest rate increases of between 0.75% and 1% over the calendar year.

Given that each 0.25% increase represents an approximately R150 per month additional repayment on an R1 million loan over 20 years, he expects interest rate hikes to impact property affordability, which will have some impact on demand and, in turn, property price growth.

“Even at a prime lending rate of 8%, we are still well below the level of 10% that existed when we entered into the pandemic in early 2020. We thus expect the demand for new home loans to reduce by approximately 5% to 8% in 2022 compared to the record high volumes in 2021. We envisage an average purchase price growth of about 3% to 4% for 2022,” he said.

“Similarly, we predict a shift in buying activity from the lower end of the market to the mid-segment of the market, as the demand for home loans at the lower end of the market contract due to affordability constraints.

“The rent or buy calculation is expected to start shifting back towards renting from an affordability perspective, which may result in more buy-to-let investment buyers entering the market.”

Ooba anticipates high approval rates for home loans during 2022, with banks continuing to compete for new business by offering low or no-deposit lending requirements.

Read: The houses you can afford on the average salary in South Africa

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The average purchase price for a house in South Africa right now – and bank lending behaviour