Good news for homebuyers in South Africa

Despite adverse economic conditions weighing down on the property market in South Africa, Banks’ approval rates remain high while the average property price has seen a slight decline, which is good news for homebuyers – especially prospective first-time homeowners.

According to the Q2 2023 oobarometer: Home Loan Statistics released by ooba Home Loans, as expected, property sales have slowed due to the high interest rate environment and challenging economic conditions.

The data shows a 25% decline in the volume of home loan applications year-on-year (from Q2 2022 to Q2 2023) and by a further 30% from the high noted in Q3 2021 when the prime lending rate was at a historical low of 7%.

Property price growth muted

The average price that ooba Home Loans customers are paying for property remains in negative territory, with the average purchase price for Q2 2023 down by -0.4% from Q2 2022 – from R1,431,712 to R1,426,656).

The average purchase price recorded for first-time homebuyers in Q2 2023 was R1,120,173. This is down 2.6% from the R1,150,256 in Q2 2022.  

“This is in reaction to the rapid rise in interest rates – which climbed 475 basis points since the start of the rates hike cycle in November 2021, resulting in weakening demand for property,” said Rhys Dyer, CEO of ooba Home Loans.

While the property price decline is good news for new homebuyers, he added that an end to the current interest rate hiking cycle is needed to stimulate renewed demand for residential property and stabilise the market.

“The recent decision by the South African Reserve Bank to leave the interest rate unchanged is great news for the property sector, with an expectation that we have reached the top of the cycle and that the next interest rate movement will be downwards.”

Banks are lending

Despite this dampener on the market, this has not influenced the willingness of banks to continue to lend competitively.

“Banks continue to compete for homebuyers, as evidenced by a steady average successful approval rate. Customers continue to benefit from a high approval rate of 82.8% – unchanged from Q2 2022,” said ooba.

In addition, the approval rate for 100% loans is stabilising to just above 80% – rising to 81.9% in June 2023 from 80.2% in May 2023. 

“This removes some of the barriers to entry for homebuyers – particularly first-time homebuyers – who cannot afford to put down a deposit,” said Dyer.

“Deposits now make up 9.6% of the average purchase price (R107,917) for first-time homebuyers – a staggering 15.2% increase year-on-year.”

However, it’s interesting to note that the number of people declined by the first bank they applied to increased slightly from 33.6% in Q1 2023 to 34.6% in Q2 2023.  

“This is the effects of high interest rates coupled with the rising cost of living on applicants’ affordability profiles. Despite this, approval rates remain higher than the previous quarter, highlighting the critical importance of receiving quotes from several banks when applying for a home loan,” said Dyer.

“Banks are still lending, which should come as a confidence booster to many of us,” he added. “We are at the peak of the interest rate cycle, which means that the homebuyers who can afford a home loan at the current interest rate are a good risk going forward”.

Outlook

The decision not to increase interest rates further this month is a great message for the property market. However, Dyer envisages that activity in South Africa’s housing market will likely remain subdued until there is a shift to an interest rate-cutting cycle.  

“We anticipate below-average demand and modest property price growth in the short term. Weaker home-buying activity will support the investor market as the demand for rental properties increases,” he said.

He also noted that approval rates and the current level of interest rate discounts should hold steady whilst banks continue to compete for good-quality home loans amongst a smaller pool of buyers.

“The best avenue for serious buyers is to shop around and negotiate the best deal on a home loan. With more affordable property prices and banks offering home loans on favourable terms, this could be one of the best times to purchase property,” he added.

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