Zero-deposit bonds surge first-time buyer market

Lending conditions have remained advantageous to home loan applicants during 2021’s third quarter, despite Covid-19 and the civil unrest in South Africa, according to ooba Home Loans’ latest oobarometer.

The pandemic has drastically changed consumer behaviour as well as banking trends, resulting in a surprising boom in the local residential property market over the past twelve months” says Rhys Dyer, CEO of ooba. “Continued competition amongst the major banks for a bigger share in the home loans market has translated into higher approval rates as well as offers of attractive interest rates below prime. Added to the mix, local interest rates remain at their lowest level in fifty years”.

These factors combined suggest that home buying and mortgage lending have, to date, remained relatively immune to the pandemic. Despite slower growth in property prices for this quarter, we expect growth in residential property prices to continue”.

The oobarometer stats show a retreat this quarter from previous double-digit to single-digit property price growth with the ‘Average Purchase Price’ increasing by 5.4% year-on-year compared to 2020’s third quarter.

Dyer adds: “The local banking industry also appears to be optimistic about the future of the South African residential property market. The current lending landscape remains fiercely competitive, which is evidenced in the softening of their deposit requirements and their approvals at interest rates on average below prime”.

ooba’s stats for 2021’s third quarter shows that the ‘Average Deposit as a Percentage of the Purchase Price’ declined by 10.5% year-on-year with ooba securing an average interest rate of 0.14% below prime during this quarter for its successful home loan applicants, 23 basis points cheaper than the 2020 third quarter prime plus of 0.09%.

Of all the home applications received by ooba during 2021’s third quarter, 50% were from first-time homebuyers. Almost 63% of ooba’s first-time buyer applications were for zero-deposit bonds compared to the 60% recorded in 2020’s third quarter.

Zero-deposit bonds are very sought-after amongst first-time homebuyers” says Duyer. “Our approval rate for 100% bond applications this quarter was 81.5%, up by 1.4% on the third quarter of 2020. The willingness of banks to offer low or no deposit loans creates the ideal environment for new entrants to the property market”.

With the lower cost of borrowing boosting affordability, ooba’s stats show growth in homebuyers purchasing alone as opposed to co-buying, to become the exclusive owners of their properties. This segment of homebuyers has grown to close to 60% of ooba’s applications processed since the beginning of the pandemic.

Female homebuyers currently dominate this single-owner segment, constituting over 51% of applications received by ooba. Since April 2020, applications from women buying on their own has increased by 4%.

Purchasers buying properties as buy-to-let investments increased to 7% of applications received by ooba in the third quarter, compared to 5% in the third quarter of 2020. Current lending and buying conditions are perfect for property investors” he adds.

Banks’ decisions on credit and pricing can vastly differ, as indicated by the record high ratio of 47.5% of applications that are initially declined by one bank but approved by another bank in the oobarometer stats.

In the current highly competitive banking environment, it is essential to use a home loan comparison to shop around for the best bond deal.

During the third quarter of 2021, ooba successfully obtained home loan finance for over 82% of its applicants” concludes Dyer.

Article originally published on ooba Home Loans