Slow property price growth and competition among banks favours new homebuyers

Stats for Q1 2022 from ooba indicate a residential property market and lending environment that still favours entry into the property market as slowing house price growth coincides with more accessible home loan finance.

Rhys Dyer, CEO of ooba, says the rising interest rate cycle has some people believing that now is not the right time to enter the property market. “Whilst the anticipated increases to the prime lending rate during the remainder of 2022 will see home loan repayments rise from the current levels, the modest pace at which interest rates are expected to rise suggests that homebuyers should still continue to benefit from a relatively low interest rate environment”.

ooba’s latest statistics show a nominal 2.9% year-on-year property price growth for Q1 2022, with the average purchase price up marginally from R1 386 785 in Q1 2021 to R1 426 483 in Q1 2022. Dyer says this translates into good news for those looking at entering the property market.

Despite a higher inflationary environment impacting the cost of goods like food and fuel, the average purchase price for first-time home buyers is effectively the same as it was a year ago, at R1 131 905 up from R1 127 776, given the nominal increase of 0.4% from Q1 2021 to Q2 2022. There are therefore still good opportunities for first-time homebuyers to enter the market now.”

Gauteng South and East remains the most affordable region for first-time homebuyers, with an average purchase price of R973 499 in Q1 2022 – the only region in South Africa with an average first-time buyer purchase price below R1 million. In contrast, first-time buyers paid an average R1 592 777 in the Western Cape in Q1 2022 – the highest average price in country during Q1 2022 and a record high for the region. 

He adds that competition amongst South African banks for home loans is expected to remain strong throughout 2022. “The banks have reacted strategically to buyers’ confidence in the property market by making home loan finance more accessible and affordable. The current record low deposit requirements, attractive interest rate discounts and cost-inclusive loans, create an ideal environment for aspirant home buyers”.

Banks are responding well to the increasing demand for no deposit loans with an approval rate of 82% in Q1 2022 in this segment, up on Q1 2021’s approval rate of just under 81%. ooba’s latest statistics show that 64% of applications processed during Q1 2022 were from homebuyers who required financing for the full purchase price, a 5% increase on Q1 2021’s intake of 100% loan applications”.

Lower deposit requirements have seen the average deposit as a percentage of the purchase price drop from 10.2% in Q1 2021 to 6.7% in Q2 2022. Similarly, the average deposit for first-time homebuyers is down from 8.2% in Q1 2021 to 6.7% in Q1 2022 (see chart below).

ooba’s statistics show a 6.9% growth in the average bond size from R1 244 884 in Q1 2021 to R1 331 368 in Q2 2022. “The 6.9% growth in our average bond size vastly exceeds the 2.9% growth in the average purchase price. This illustrates the increased number of loans that are being granted at high loan to values,” says Dyer.  Bonds with a value of greater than R1 500 000 accounted for 60% of ooba’s total approved and instructed home loans in Q1 2022, an upward shift of 3% on Q1 2021’s 57%.

The competitiveness of the home loan environment can be seen in the high ratio of applications declined by one lender but approved by another. Of the home loan applications declined by one bank, 45.3% were approved by another bank in Q1 2022.

ooba achieved an average interest rate discount of prime less 0.23% for our homebuyers in Q1 2022, 18 basis points lower than Q1 2021’s average rate of prime less 0.05% (see chart above). Banks continue to compete on rate to attract new home loan business“.

ooba continues to see differing credit and pricing decisions from the banks, making it even more important to use a free home loan comparison service like ooba to shop around for the best home loan deal,” concludes Dyer.