Advice and Opinion Research

Affordability shown to have major impact on consumer behaviour

Affordability remains the foremost consideration for anyone contemplating buying a home in South Africa. This is one of the key findings of the Absa Homeowner Insights, a unique and first-to-market report released today and delves into consumer behaviour and experiences during the different phases of home ownership.

“Buying a home is likely to be one of the biggest long-term investments most people will ever make and Absa’s entire philosophy and business model centres around our ambition to become the ‘Go-To’ bank for home loans in our customers’ lives,” says Carel Grönum, Managing Executive of Absa Home Loans.

“We are the first bank to provide the market with consumer insights of this nature. The findings of our first Homeowner Insights has given us a far better understanding into the various decisions consumers take along the initial stages of their homeowner journey. The findings of this, and each subsequent report, will play a key role as we continue to guide our customers home – shaping future propositions and communications based on the insights we gain.”

Absa partnered with Columinate, a best-in-class digital market research company, to conduct the research on behalf of the bank. Columinate is best known in the market for its Internet Banking SITEisfaction® survey which has become the standard to measure digital banking performance.

“A total of 1,209 individuals took part in the first Homeowner Insights survey which was conducted during May this year, representing a well-balanced and even spread across race, gender, age and personal income criteria. The survey focused on individuals who are decision-makers when it comes to household matters and the sample included tenants of rental properties, established and new home owners, individuals intending to purchase a home within the next 5 years and investors who buy properties as investments,” says Dr Henk Pretorius, CEO and co-founder of Columinate.

For the purpose of today’s launch, Absa has focused predominantly on affordability and how it impacts consumer behaviour in the pre-buying and property searching phases.
During the two initial phases of home ownership, prospective buyers not only have to consider the sheer size of the transaction and the duration of the commitment, but also the associated risks and their ability to service the home loan consistently over a long period of time.

The Homeowner Insights found that more than a third of respondents who participated in the survey had to reassess their needs once they started identifying suburbs and viewing properties they like. Of respondents reassessing their needs after deciding to buy, the majority cited affordability as the main reason.

“Despite its importance, the Homeowner Insights established that affordability is often poorly understood. It leads to anxiety as well as inefficiency in the pre-buying and property searching phases and potentially places the customer’s financial wellbeing at risk. Aspiring home owners regularly apply for a home loan without fully understanding or disclosing their current financial commitments and without grasping the full impact that the monthly instalments could potentially have on their financial welfare,” says Carel.

The Homeowner Insights found that the majority of respondents were confident about their ability to afford their newly approved home loan at the time of searching for a property. However, in Absa’s experience, around 40% of applicants are granted home loans following the bank’s assessment process.

While credit records and conduct of accounts play a key role when assessing home loan applications, affordability accounts for a large portion (22%) of customers’ home loan applications being declined. In cases where applicants have healthy credit records and good financial conduct, some simply cannot afford the monthly instalment based on the bank’s affordability assessment.

“The biggest challenge with the affordability assessment does not lie with the assessment process, but rather with the customer’s interpretation and understanding of their own personal financial situation,” says Carel.

As identified in the Homeowner Insights, the disconnect between the customer’s understanding of their financial situation and that of the bank, creates a lot of anxiety for aspiring home buyers.

“Affordability is a complex subject that poses significant challenges to the pre-buying and searching phases of the homeowner journey. Absa is committed to helping address these concerns by investing in research, product and process development and customer education to benefit the entire property industry,” concludes Carel.