Bank lending remains positive despite 2018’s sluggish property market

Rhys Dyer, CEO of ooba, says: “Uncertainty around impending South Africa’s land reforms as well as an increase in the prime lending rate to 10.25% in November probably contributed to the slowing property growth in the last quarter of 2018.”

2018 was a challenging year for the South African property market, with negative real price growth in the residential property market and slowing market activity.

Fourth quarter (Q4) statistics from ooba, South Africa’s home loan comparison service, show minimal year-on-year growth in the Average Purchase Price of 0.9% from Q4 17 to Q4 18.  

Rhys Dyer, CEO of ooba, says: “Property market activity and resultant price growth continue to be hampered by political uncertainty and economic constraints. Uncertainty around impending land reforms as well as an increase in the prime lending rate to 10.25% in November probably contributed to the slowing property growth in the last quarter of 2018.” 

Whilst we do not expect the general market conditions in the first half of 2019 to show any significant improvement, the slowing property price growth, coupled with competitive bank lending conditions, do signal a great opportunity for new homebuyers looking to enter the property market for the first time. 

Says Dyer :” We believe 2019 will see much stronger first time homebuyer activity, as these buyers take advantage of the “buyers market” conditions, the fact that they do not need to sell an existing property and the favourable bank lending requirements, specifically around lower deposit requirements”. 

Says Dyer: “Despite the lower demand in the residential property market, banks continue to compete strongly with each other to make loans more accessible and affordable. Their robust lending appetite is evidenced by ooba’s Average Deposit as a Percentage of Purchase Price indicator which is down by over 20% year-on-year from 15.5% of the purchase price last year to 12% of the purchase price now.

“The  Approval Ratio in ooba’s Q4 18 statistics shows that bank approvals increased by 8% year-on-year, to 80% whilst the Average Interest Rate has decreased,” adds Dyer. 

Negative real property price growth means that the property market is more affordable as wages increase by more than property values.  Cheaper property prices coupled with favourable lending conditions are particularly advantageous to first-time home buyers who don’t have a property to sell. 

Says Dyer: “This is the ideal time for prospective first-time homeowners, including those without deposits, to enter the property market. 80% of our 100% bond applications in Q4 18 were approved compared to 72% in Q4 17.  While applications to ooba by First-time Buyers increased by 3% year-on-year, our 100% bond applications showed an almost 7% increase over the same period.  

“Although this is indicative of the demand for 100% bonds from first-time buyers, we are also seeing more second-time buyers successfully applying for 100% bonds. Buyers are finding it increasingly difficult to raise a deposit due to the challenging economic conditions and banks are more prepared to offer customers 100% bonds,” adds Dyer. 

Prospective homebuyers should take advantage of this positive lending environment.  Given the competition amongst banks for new customers, it is advisable to shop around to get the best home loan deal. Potential homebuyers should use a free home loan comparison service like ooba to do the legwork. 

“We pre-qualify our buyers to ensure they shop in the correct price bracket, allowing them to confidently negotiate a satisfactory price knowing that getting bond finance is a mere formality,” concludes Dyer.