First-time home buyers are also scaling back on the properties they want. Picture: Rodnae Productions
Competition for home loans remains vigorous among home loan lenders, despite the ongoing interest rate hikes and rising costs which is placing further pressure on consumers.
This is according to statistics for the third quarter of 2022 (Q3’22) released today by ooba Home Loans.
Year-on-year property price growth in most provinces has slowed to rates well below inflation, and Rhys Dyer, chief executive of ooba Group says this should improve the affordability of property as wages grow quicker than property prices.
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“This coupled with the banks’ willingness to continue to approve home loans at attractive terms, makes investing in residential property an attractive proposition - especially for first-time home buyers.”
First-time buyers are ‘buying down’ due to affordability constraints
ooba’s national average purchase price of R1 402 408 in Q3 ‘22 was 2% higher than that of Q3 ‘21’s R1 374 757.
“Looking to the first-time home buyers’ market, our average purchase price fell from an average of R1 117 398 in Q3 ‘21 to a more affordable level of R1 087 089 in Q3 ‘22. This reflects the impact of increasing interest rates and cost of living on first-time home buyers as they scale back and select properties within their affordability range.”
Dyer notes, however, that investment and buy-to-let properties have seen a sharp uptick, recording year-on-year growth of almost 30% in Q3 ’22.
“This figure is indicative of the demand for property rentals as rising interest rates put the dream of homeownership on hold for the time being.”
Trends in purchase price segments
Interestingly, 58% of the approved bonds processed by ooba over Q3 ’22 were for properties of R1.5 million-plus, which is an increase of 1% from Q3 ’21 and a significant 9% from Q1 ‘20.
“The work-from-home phenomenon coupled with historically low interest rates throughout the pandemic saw many ‘scaling up’ as home loan repayments became more affordable,” Dyer explains.
Properties ranging from R759 000 to below R1.5 million make up 31% of instructed bonds – down by 2% from Q3 ’21 and 4% from Q1 ’20, while properties below R750 000 account for 11% (up by 1% from Q3 ’21 and down by 5% from Q1 ‘20).
“This indicates a shift in home buying trends in this property price segment post-Covid pandemic.”
Savvy home buyers are prioritising deposits
On average, the size of deposits put down by home buyers in Q3 ‘22 has grown at a rate of 18.2% from the previous year. The average deposit (as a percentage of the purchase price) in Q3 ’21 was 7.7% and is now 9.1% in Q3 ’22 (R127 567).
“Bigger deposits are a sign of savvy financial decision-making by home buyers. A larger deposit is likely to secure the best possible interest rate and is often required to ensure home buyers can cover their monthly bond repayments under higher levels of interest.”
Approval rates for 100% loan applications remain elevated at 84.1% in September 2022, however, demand for 100% loans decreased from 60.8% in August 2022 to 56.6% in September 2022.
“This indicates that more home buyers are unable to meet affordability requirements on a 100% loan and need to put down deposits to qualify for the home loan,” Dyer adds.
Looking to first-time buyers, the average size of deposits is at 8.1% – up 14.1% from Q3 ’21 but unchanged from the previous quarter.
“First-time home buyers have been accessing 100% and 105% home loans (zero-deposit loans) in recent years and whilst these loans are still available, it seems as if first-time buyers are beginning to prioritise deposits once again.”
Bank lending as it stands
ooba’s statistics show that the average approval rate on applications processed during Q3 ‘22 was 83.3%, an increase from Q3 21’s 82.9%. Dyer goes on to say that 46.2% of home loan applications declined by one bank in Q3 ‘22 were approved by one or more of the others.
“Credit decisions can differ vastly from bank to bank...Our research also shows that home buyers who only obtain a single home loan quote will repay their home loan at an interest rate that is on average 1.03% (103 basis points) higher than those who obtained multiple quotes.”
Demand for financed housing has been impacted
High levels of inflation globally resulted in the Monetary Policy Committee increasing interest rates in Q3 ‘22 by a further 1.5%, taking the banks’ prime lending rate to its current level of 9.75%, Dyer says, adding that the relative deterioration in affordability resulting from these further two interest rate increases has had an impact on the demand for financed residential property, with a 6% decline in the recorded intake of home loan applications in Q3 ‘22.
“First-time home buyers made up the bulk of applications during the early stages of the COVID-19 pandemic, but have now returned to pre-pandemic levels of just under 50% of applications.”
Still a positive outlook
Looking ahead, Dyer expects that residential market volumes will continue to decline in the short-term, largely due to additional interest rate increases set to take place in November 2022 and Q1 2023.
“However, as demand slows, the supply of property increases and prices adjust, with a correlating decline in property price inflation. This sets the stage for a more active market.”
However, he says it is important to remember that the market will settle.
“The banks continue to support demand and make the aspiration of homeownership affordable and accessible across all price brackets.”
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