Consumers continue to demonstrate confidence in the residential property market, despite mounting affordability constraints.
That’s the word from Shaun Rademeyer, CEO of SA’s biggest mortgage originator, BetterLife Home Loans, who notes:
“Our latest statistics show that the number of home loan applications being submitted by prospective homebuyers has increased by 4% in the past 12 months, in line with the continued increase in housing demand.”
In addition, he says, there has been a sharp decline in the number of applications being declined by the banks, with the net result being an increase of almost 2% in the number of home loans approved in the 12 months
“This confirms that there is not only a bigger number of prospective buyers in the market, but also a bigger number who are financially qualified to buy – which is quite remarkable given the food, tax, transport and utility cost increases that have impacted many household budgets over the past year.”
Further analysis, Rademeyer says, shows that repeat buyers were in the majority over the past 12 months, accounting for 53% of home loan applications and 67% of home loan approvals. “The fact that these buyers often have equity in an existing property that they can use as a deposit gives them the edge in obtaining bond approval, and many who are 55 and over are now also downsizing, which means they usually also need smaller loans.”
“Still, the fact that the majority continue to re-invest their equity in property rather than buy other assets is, we think, a strong vote of confidence in the real estate market that we hope will not be undermined by a hasty interest rate increase after the meeting of the Monetary Policy Committee later this month.”
He says that the longer the Reserve Bank is able to hold interest rates steady, as the Federal Reserve is still doing in the US, the better it will be for prospective first-time buyers, too. “In general, such buyers feel the effects of cost-of-living increases to a much greater extent than repeat buyers, and with stretched budgets they are currently having a tough time saving up the cash deposits they require to become homeowners.”
The BetterLife statistics, which represent 25% of all residential mortgage bonds being registered in the Deeds Office, show that in the 12 months to end-June, the average percentage of home purchase price that first-time
buyers were required to pay as a deposit dropped from 8,7% to 7,5%.
“At the same time,” says Rademeyer, “the rate at which the average purchase price in this sector of the market grows slowed from 7,5% to 1,4%, so the actual average cash amount required as a deposit declined – and this easing, we believe, is what has enabled so many first-time buyers to stay in the market thus far. A rate increase at this stage could knock many of them out by preventing them from being able to qualify for home loans.”
Meanwhile, he says, home sellers need to bear in mind that the growing trend towards downsizing among repeat buyers has also caused the rate of price growth in this sector of the market to slow down.
“Our stats show that in the past 12 months, the average home price has grown only 4%, compared to almost 11% in the previous 12 months. Consequently, sellers hoping for quick sales may want to start moderating their price expectations to some degree.”