Statistics for the third quarter of 2022 (Q3 ’22) released by ooba Home Loans, South Africa’s leading home loan comparison service, reveal that competition for home loans remains vigorous among home loan lenders, despite the ongoing interest rate hikes and rising costs which places further pressure on consumers. 

“Year-on-year property price growth in most provinces has slowed to rates well below inflation,” comments Rhys Dyer, CEO of ooba Group. “This should improve the affordability of property as wages grow quicker than property prices.  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 homebuyers.” 

First-Time Homebuyers are “Buying Down” Due to Affordability Constraints 

ooba’s national average purchase price of R1 402 408 in Q3 ‘22 was 2.0% higher than that of Q3 ‘21’s R1 374 757. “Looking to the first-time homebuyers’ 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 homebuyers as they scale back and select properties within their affordability range.”

Dyer notes 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 - up by 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,” explains Dyer. 

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-19 pandemic.”

Savvy Homebuyers are Prioritising Deposits

On average, the size of deposits put down by homebuyers in Q3 ‘22 has grown at a rate of 18.2% from the previous year. The average deposit (as a % 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 homebuyers. A larger deposit is likely to secure the best possible interest rate and is often required to ensure homebuyers 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 homebuyers are unable to meet affordability requirements on a 100% loan and are needing to put down deposits to qualify for the home loan,” he 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 homebuyers 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% - up 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 - once again underpinning the importance of using a home loan comparison service like ooba Home Loans to shop around for home loan finance.  Our research also shows that homebuyers 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.” 

ooba achieved an average interest rate of prime less 0.30% for its customers in Q3 ’22, 16 basis points lower than Q3 21’s prime less 0.14%.  “Banks are therefore continuing to compete on rate to attract new home loans business.”

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%.   The relative deterioration in affordability resulting from these further two interest rate increases has had an impact on the demand for financed residential property, explains Dyer, pointing to a 6% decline in the recorded intake of home loan applications in Q3 ‘22. “First-time homebuyers 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,” he concludes.

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.”

Important to remember is that the market will settle. “The banks continue to support demand and make the aspiration of homeownership affordable and accessible across all price brackets,” he concludes.