The average purchase price for a house in South Africa right now – and a shift in buying patterns

Data from bond originator, Ooba finds that banks in South Africa continue to offer competitive interest rates on home loans, despite the tough climate.

Rising inflation, higher fuel costs and increases in the prime lending rate have not deterred the home buying market, nor the banks’ confidence in first and second-time homebuyers, the group said, citing data for the second quarter of 2022 (Q2 ‘22)

“Continued low interest rates relative to historic trends and the banks’ continued willingness to lend at high loan-to-value ratios has principally supported home buying activity in Q2 ‘22,” said Ooba chief executive, Rhys Dyer.

Ooba’s average purchase price of R1,431,712 in Q2 ‘22 showed a lower than inflation rate growth of 1.8% on Q2 21’s R1,407,071. Similarly showing lower than inflation growth, the first-time buyer’s average purchase price of R1,150,256 in Q2 ‘22 was 4.2% higher than a year ago – R1,104,351.

“This slowing in the growth of the average purchase price reflects consumers adjusting their buying patterns to the current interest rates and economic challenges,” said Dyer.

Across the regions, the Western Cape showed the highest average purchase price in the country at R1,851,740 in Q2 ‘22 (R420,028 higher than the national average purchase price), followed by Gauteng North and the West Rand (R1,535,848). The Free State reported the lowest average purchase price in the country at R981,493.

Average Approved Bond Size

Ooba’s Q2 ‘22 statistics show that the average approved bond size of R1,320,225  – up by 2.4% from Q2 21 –  grew at a higher rate than that of the average purchase price, indicative of sturdy lending confidence. The average approved bond size for first-time buyers grew by 4.4% from R1,012,249 in Q2 21 to R 1,056,574 in Q2 ‘22.

The growth in the approved bond size dovetails with the trend in lower deposits, the lending specialist said.

Dyer said that banks continue to respond well to zero deposit and cost-inclusive lending, particularly in the first-time homebuyer market segment.

“Our Q2 ’22 statistics show that 60% of our first-time homebuyer applications processed in Q2 ’22 were from buyers who had no access to a deposit. The approval rate on these zero deposit applications in Q2 ’22 was 80% – only marginally lower than Q2 ‘21’s approval rate of 81%.”

Deposits

According to Ooba’s latest statistics, the average deposit for Q2 ’22 came in at 7.8% of the total purchase price – down from 8.4% in the same period for the previous year, but up from the 6.7% average deposit that was recorded in Q1 2022, potentially indicating a bottoming out of the historically low average deposit trend.

Approval and interest rates

Ooba said it achieved an approval rate of 82.5% on applications processed during Q2 ’22, similar to Q2 21’s 82.6%, indicating that banks’ approval rates remain steady.

“Banks competing for home loan business is evident in the high ratio of applications declined by one lender but approved by another,” Dyer said, adding that 45.5% of applications initially rejected by one bank in Q2 ‘22 were subsequently approved by another bank.

Banks are also continuing to compete on rates to attract new home loan business. Q2 ‘22’s statistics show that Ooba achieved an average interest rate discount of prime less 0.30% – 16 basis points lower than Q2 21’s prime less 0.14%.


Read: How much more you will pay on your bond after South Africa’s latest shock interest rate hike

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The average purchase price for a house in South Africa right now – and a shift in buying patterns