First-time homebuyers are responding positively in expectation of interest rate cuts according to Q3 2024 data from ooba Home Loans.
With another interest rate cut on the cards for November 2024, this segment will start to lead the recovery of the property market says CEO of ooba Group, Rhys Dyer.
Other trends emerging during the quarter highlight the resilience of both homebuyers and lenders in the ‘higher for longer’ interest rate environment as well as an uptick in self-employed applicants, steady bank approval rates, lower deposit requirements, higher average bond sizes and the ongoing offer of attractive rate concessions.
First-time homebuyers, now one year younger than in Q3 2023 at age 35, accounted for 51% of ooba Home Loans’ applications in September 2024. However, Dyer notes that during the quarter, the group represented 48% of applications indicating that there is still some ground to cover before surpassing the 50% mark for the first time since Q4 2021.
During Q3 2024, the average purchase price by first-time homebuyers was R1.155 million in Q3 2024, up by 3.4% in Q3 2023.
Regionally, the Western Cape yielded the highest average purchase price paid by first-time homebuyers between January and September 2024 of R1.157 million. On the other hand, the Free State (and more recently Gauteng South and East) are the only regions where first-time homebuyers are purchasing for under R1 million on average, making them the most affordable regions for the segment.
While purchase prices are trending higher, deposits have recorded a slight decrease. “This quarter’s deposit data cites a reduction in deposit size for first-time homebuyers, down by 2.9% year-on-year and now at R114 161 (9.9% of the average home loan),” says Dyer. As affordability improves with lower interest rates, this trend is likely to continue, enabling more homebuyers to qualify for 100% bonds and further decreasing the average deposit amount, he adds.
The average loan-to-value (LTV) ratio for first-time homebuyers in the Western Cape sits at a generous 96.4% compared to that of the national average of 89.90%.
“And while zero-deposit bond applications have tapered off from a high of 67.5% in June 2020 to 54.7% at present, we do anticipate that this trend will reverse. Lower interest rates will entice first-time homebuying activity and we expect that young homebuyers will be eager to enter the housing market without necessarily having a deposit.”
Looking at the age breakdown of first-time homebuyers per region, Limpopo is home to the oldest average (aged 36.8) while the Western Cape is home to the youngest average of 34.2 years.
First-time homebuyers have also capitalised on the benefits of pre-qualifying for a home loan with the average approval rate for pre-qualified buyers now sitting at 90.5% in contrast to those not pre-qualified of 74.5%.
General homebuyer trends and behaviours have pointed to the average property purchase price increasing nominally by 1.7% year-on-year from R1.423 million in Q3 2023 to R1.447 million in Q3 2024. In addition, the average approved bond size saw a significant year-on-year improvement, climbing 6.3% from R1.285 million in Q3 2023 to R1.366 million in Q3 2024.
Regionally, in contrast to the Western Cape with an average purchase price of R1.93 million, the Free State, Gauteng South & East and KwaZulu Natal are amongst the lowest average purchase prices, making them ideal areas for homebuyers seeking affordable investment opportunities.
Year-to-date national house prices have risen nominally but the average growth in house prices varies sharply across regions, ranging from a high of +7.7% in the Western Cape to a low of 3.8% in Joburg North and the West Rand.
Interestingly, the data has revealed increased buying activity from self-employed applicants which now accounts for 13.5% of the applications compared to 12% in Q3 2023.
Also pertinent is that the self-employed buyer segment is investing in more expensive properties than their salaried counterparts. “The value of self-employed applicants’ home loan applications in Q3 2024 was 21% of the total value of applications received, compared to just 19% in Q3 2023.”
