Good news for home loans in South Africa – banks are still lending

First-time property buyers continue to dominate activity in the residential market despite recent interest rate hikes, according to the Seeff Property Group.

The group noted home loan approvals are at their fastest rates in over a decade, while deposit requirements are now down to around 6% to 7% as the banks compete fiercely for a slice of the home loans market.

Samuel Seeff, chairman of the group said this is driven by the favourable mortgage lending climate and the low interest rate which, despite the 125bps hikes this year, remains well below the pre-pandemic level.

First-time buyers are still able to secure 100% bonds plus costs in many instances. Seeff said this has been an enormous benefit and buyers continue taking advantage.

Deeds office data shows that activity in the lower price bands continues to boom with about 80% of all transactions falling below R1.5 million. Lightstone recently reported that sales in the R700,000 to R1.5 million price bands hit a six-year high last year.

While national house price inflation has slowed to around 4.55% (5% to 6%) in the lower price bands, Seeff said this slow-down in house price growth adds to the favourable buying conditions in the market.

“The fact that South African house price growth has been well below that of other countries following the huge pandemic-induced interest rate cuts globally over the last two years is one of the reasons why there is no overheating of the market or need to cool the housing market.”

“The residential market appears to have largely recovered from the pandemic-induced decline of early 2020. Despite a slow-down following the buyer frenzy of mid-2020 to mid-2021, the market continues trading at pre-pandemic levels.”

Seeff said the market has benefited hugely from the Covid-19 pandemic and resultant interest rate cuts. The cuts have been an enormous boost, enabling more first-time homebuyers to get into their own homes.

Who is lending?

Ooba Group said that just because you are a loyal client to your bank, does not mean it will lend you money to purchase a house at a favourable rate. “We continue to see differing pricing decisions and credit from the banks – regardless of whether the applicant is that bank’s client. Each bank has different loan criteria and, in turn, is required to comply with the National Credit Act,” he said.

“Our data for Q1 of 2022 indicates that of the home loan applications declined by one bank, 45.3% were approved by another bank when applying through Ooba Home Loans – reinforcing the importance of using a credible bond originator to apply to multiple banks on your behalf,” said Dyer.

Six factors to consider before applying for a home loan


1. The importance of comparing interest rates

“Different banks will offer you different interest rates. The bank’s interest rate on your home loan is linked to the prime interest rate set by the South African Reserve Bank (SARB) – either above or below prime, depending on your credit risk profile.”

An applicant’s own bank may offer them an interest rate of 7.75% – the current prime lending rate in South Africa – while another bank may offer a rate of 7.50% – R66,240 saving over 20 years.


2. Repayment period

A home loan term is generally a choice of 20 or 30 years. A 30-year bond means lower monthly repayments on a higher interest rate while a 20-year bond means higher repayments on a lower interest rate.

“A 30-year bond costs more in the long-term but will leave you with more room for additional expenses each month. A bond originator can help you to weigh up what’s best based on your affordability,” said Dyer.


3. Joint bond ownership

“We’re seeing an increase in joint bond applications where two (or more) people apply together for a bond on the same property.

“This process is more complicated in some ways as the banks look at the affordability of both/ all parties, so it’s good to cast a wide net when applying,” said Dyer.


4. Deposits

The uptick in 100% (zero-deposit) bonds being granted by the banks has played a major role in the sustained demand for home loans.

“Of the home loans approved through Ooba Group in Q1 of 2022 (82%), 64% of applications were for buyers who required financing for the full purchase price – a 5% increase on Q1 for 2021.”


5. 100% vs 105% bond

After opting for a 100% bond, you may also qualify for a 105% bond.

Dyer said that 105% bonds normally cover the costs of transfer and bond registration – usually 8-10% of the purchase price – and are generally targeted at first-time buyers and properties below R1.8 million.


6. Fixed vs variable interest rates

“Some banks may offer you the option of a bond with a fixed interest rate when you apply – that is, a set rate that will not fluctuate when interest rates go up or down.

“This helps to protect buyers from interest rate hikes, but it also means that you will not benefit from monthly repayment savings should it go down,” said Dyer.


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Good news for home loans in South Africa – banks are still lending