The second quarter of 2023 statistics released by Ooba Home Loans in South Africa indicates that the recent series of ten consecutive interest rate hikes since November 2021 have negatively impacted the volume of home loan applications. However, the willingness of banks to lend competitively remains unaffected.
Property sales have slowed down due to the high-interest rate environment and challenging economic conditions. As a result, there has been a 25% year-on-year decline in the volume of home loan applications and a 30% drop from the peak in Q3 '21, when the prime lending rate was at a historical low of 7%.
The average price that Ooba Home Loans customers are paying for property has declined by -0.4% from Q2 '22 to Q2 '23, with first-time homebuyers experiencing a 2.6% decrease during the same period. This decline is attributed to the rapid rise in interest rates, which have climbed 475 basis points since the start of the rate hike cycle in November 2021, resulting in weakened demand for property.
Despite the property price decline being good news for new homebuyers, the market needs an end to the current interest rate hiking cycle to stimulate renewed demand for residential property and stabilize the market.
The statistics show that homebuyers are adopting good financial habits by prioritizing deposits, with the average deposit size growing from 7.5% of the purchase price in Q1 '23 to 8.4% in Q2 '23. First-time homebuyers are also valuing deposits, with deposits now making up 9.6% of the purchase price, indicating a 15.2% increase year-on-year.
Despite the challenging economic conditions, banks are still competing for homebuyers, and the approval rate for 100% loans is stabilizing at just above 80%. However, there has been a slight increase in the number of people declined by their first bank, which is attributed to the effects of high-interest rates and the rising cost of living on applicants' affordability profiles.
The article also highlights that first-time homebuyers are taking advantage of property investment opportunities, with an increase in gross incomes leading to more first-time property investors entering the market. The average income of first-time property investors has increased sharply, and applications for investment/buy-to-rent properties have risen significantly, especially in the Western Cape.
Looking ahead, the decision not to increase interest rates further is seen as a positive message for the property market. However, housing market activity is expected to remain subdued until there is a shift to an interest rate-cutting cycle. The weaker home-buying activity is likely to support the investor market as the demand for rental properties increases.
Overall, while the interest rate hikes have impacted the volume of home loan applications, banks continue to compete for homebuyers, and first-time homebuyers are adopting good financial habits to improve affordability. The market is expected to remain subdued until interest rates decrease, and there may be opportunities for property investment in the meantime.