Expect banks to charge higher interest rates on your home loan in SA – expert

South Africa’s largest bond originator, ooba, has released its property statistics for the first quarter of 2017 showing a slower growth rate in home purchase prices from a year ago.

Prices during the reported period revealed a nominal positive growth of 3.9%, down from the previous Q1 year-on-year growth of 6.2% (Q1 2015 vs Q1 2016). With the inflation rate at 6.1%, this reflects a negative real purchase price growth for the quarter of 2.2%.

Although the year-on-year purchase price for first-time buyers (FTB’s) has also slowed, a year-on-year increase of 5.5% for Q1 2017 signifies the comparative ongoing demand for entry-level properties, ooba said.

However, the fact that FTB’s are more sensitive to economic downturns clearly reflects in the ooba statistics. In Q1 2017, 46% of all applications processed by ooba were from FTB’s, which is significantly down from 53% in Q1 2016, the bond originator said.

Findings from ooba’s quarterly data also showed the following:

  • The average bond size is up 3.9% year on year;
  • Bank average decline rates are up 2.8% year on year;
  • The percentage of deals that are declined by one bank but then approved by other banks is down to 30.9% from 33.4% a year ago;
  • Ooba’s resulting approval rate is down from 73% in Q1 2016 to 71.6% now, driven primarily by increased affordability declines in respect of aspirant home buyers whose personal income statements are under more strain.

“The impact of the recent ratings downgrades is likely to put more pressure on consumers  and that will likely translate into reduced demand for residential property over the medium to long term,” said Rhys Dyer, CEO of ooba.

“Our expectation in a post-downgrade environment is a movement, over time, to higher inflation, which in turn will drive higher interest rates, impacting consumer affordability and reducing housing demand, which in turn will keep house price growth constrained.

“Additionally banks cost of funding is likely to increase over time, which will lead to higher home loan interest rates being charged by lenders and again have an impact on affordability and property demand,” Dyer said.

Read: Buying a house in South Africa is about to get a lot harder

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Expect banks to charge higher interest rates on your home loan in SA – expert