Bad times for first-time buyers in South Africa – but there’s a catch

 ·10 Jul 2024

An increasing number of estate agents believe that young South Africans lack the funds to get a foot on the property ladder, but data from Standard Bank paints a different picture.

According to FNB’s latest Estate Agents Survey, youth participation, defined as mortgage acquisitions by buyers under 35 years of age, has continued to drop steadily since 2010, except for a brief period in 2020/21 when interest rates were cut to record lows amid the pandemic.

The survey shows a significant increase in real estate agents who believe incomes have not kept pace with house prices.

Since the start of the interest rate hiking cycle in 2H21, the proportion of agents reporting incomes falling “far behind” house prices has grown from 24.5% to 39% in 1H24.

“This highlights the growing disparity between what people earn and what they need to pay for housing amid elevated debt-service costs,” said FNB.

“Consequently, mortgage volumes have fallen below pre-pandemic levels, reflecting the difficulty many South Africans face in securing financing, especially first-time buyers.”

There has also been a notable shift in how first-time buyers finance down payments.

In the past, many relied on 100%+ loan-to-value (LTV) mortgages, allowing them to purchase properties without needing a substantial down payment.

That said, tighter lending standards have made these mortgages far harder to obtain.

The survey shows a dip in first-time buyers using 100%+ LTV mortgages as their primary funding
source, from 72% in 1H21 to 66.5% in 1H24.

There has also been a drop in reliance on personal savings, likely linked to the country’s cost-of-living crisis. Many lack enough personal savings to make a significant down payment.

To compensate for this affordability gap, many first-time buyers are seeking unsecured bank loans and government subsidies.

The survey showed that the reliance on unsecured loans increased from 2% in 2H21 to 11.5% in 1H24, indicating that first-time buyers are willing to take on more risk to enter the market.

Government subsidies, such as the First Home Finance (FHF), formerly known as the Finance Linked Individual Subsidy Program, are also playing a bigger role. The survey shows a doubling in the use of FHF as a main source of deposits since interest rates started rising, from 3.5% in 2H21 to 6% in 1H24

“Decreased affordability has broader consequences. When potential buyers are priced out, housing demand slumps, impacting everything from property values to construction activity,” said FNB.

“This, in turn, can hinder job creation and economic growth. However, with slower price pressures and potential interest rate cuts on the horizon, there are signs that buying activity may have bottomed out.”

“Combined with growth-enhancing policy implementation by the new administration, lower interest rates could further support potential buyers and revitalise the housing market.”

Not so fast

That said, Standard Bank has noted a resurgence in first-time homebuyer activity.

In May, nearly half of all home loans registered by Standard Bank were taken by first-time buyers, including all approved home loans where at least one applicant was purchasing their first home.

The volume of first-time buyer applications also went up in April and May, following a major decline in the last months of 2023 and early 2024.

“It is encouraging to see a growing proportion of first-time buyers in our book. As the leading lender for first-time homebuyers, we have maintained a steady risk appetite to ensure ongoing support for aspirant homeowners,” said Head of Standard Bank Home Services, Toni Anderson.

Below are other notable trends Standard Bank recorded from first-time homebuyers:

  • 48% of all bond registrations by Standard Bank in the past five years involved first-time buyers.

  • In the past year, Standard Bank approved an average of 50% of all first-time homebuyer applications.

  • The average loan value approved for all first-time buyers in the past three years stood at R975,000.

  • Four in ten first-time buyers had a deposit.

  • The average deposit was 24% of the selling price.

  • Gauteng, Western Cape and KwaZulu Natal represent the top three provinces for first-time buyer activity.

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