First-time home buyers still dominate amidst favourable bank lending

First-time property buyers continue to dominate activity in the residential market despite recent interest rate hikes.

This is driven by the favourable mortgage lending climate and low interest rate which, despite the 125bps hikes this year, remains well below the pre-pandemic level.

Recent data shows that more than 50% of all home loan applications were from first-time homebuyers.

It is also possible to see the high levels of buying among younger people under 35-years of age reflected in the deed’s office data comprising over one third of activity over the last year in the metros and big cities. This includes Johannesburg (33%), Soweto (27%), East Rand (56%), Pretoria (34%), Cape Town (32%), Durban (31%), Gqeberha (30%) and Bloemfontein (35%).

The residential property market is benefiting greatly from the best mortgage lending conditions since the introduction of the 2007 National Credit Act.

Home loan approvals are at the fastest rates in over a decade. Deposit requirements are now down to around 6% to 7% as the banks compete fiercely for a slice of the home loans market.

First-time buyers are still able to secure 100% bonds plus costs in many instances. This has been an enormous benefit and buyers continue taking advantage.

Deeds office data shows that activity in the lower price bands continues to boom with about 80% of all transactions falling below R1.5 million. Lightstone recently reported that sales in the R700,000 to R1.5 million price bands hit a six-year high last year.

While national house price inflation has slowed to around 4.55% (5% to 6%) in the lower price bands, this slow-down in house price growth adds to the favourable buying conditions in the market.

The fact that South African house price growth has been well below that of other countries following the huge pandemic-induced interest rate cuts globally over the last two years is one of the reasons why there is no overheating of the market or need to cool the housing market.

This is why, despite the significant uptick in sales activity, there has been no overheating or a property bubble forming.

While, in view of an expected further 100bps rise during the second half of this year, buyers need to make provision for higher home loan repayments, the rate will continue to favour buyers.

The residential market appears to have largely recovered from the pandemic-induced decline of early 2020. Despite a slow-down following the buyer frenzy of mid-2020 to mid-2021, the market continues trading at pre-pandemic levels.

The market has benefited hugely from the Covid-19 pandemic and resultant interest rate cuts, says Seeff. The cuts have been an enormous boost and have enabled more first-time homebuyers to get into their own homes which is hugely beneficial.

The outlook for the remainder of the year remains favourable and the market is still well-balanced with a steady flow of new stock. Buyers can still find excellent value and favourable home loans terms which is a huge positive for the market.

Courtesy of Samuel Seeff, chairman | Private Property & Gina Meintjes