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- Home loan approval rates were up in the fourth quarter of 2021 compared to the same period in 2020, on the back of a sharp increase the previous year.
- But for nearly half of bond applicants, it proved worth applying to more than one bank – nearly 50% of bond applications declined by one bank were subsequently approved by another.
- Banks have been competing for clients as conditions are favourable for buyers, says bond originator ooba.
Home loan approval rates were up by 3.1% in the fourth quarter of 2021 compared to the same period in 2021, according to data compiled by bond originator ooba Home Loans.
FNB senior economist Siphamandla Mkhwanazi, meanwhile, says deeds data shows that mortgage approvals in the first nine months of 2021 were approximately 34% higher compared to the same period in 2019.
The latest "oobarometer" shows a 1.6% improvement in the percentage of applications declined by one bank, but approved by another. Almost 50% of applications declined initially by one bank, were subsequently approved by another bank.
Tough competition for banks
Ooba CEO Rhys Dyer says banks have been competing for business through strong interest rate discounts, also approving more bonds with lower deposit requirements.
Second-time home buyers who, unlike first-time buyers, usually have access to a deposit, seem to be enjoying even more favourable rate discounts, ooba said.
Buyers have also been paying more. The average purchase price increased by 3% year-on-year in the fourth quarter to end 2021 at R1.39 million.
"Whilst there has been a moderation in property price growth during the last two quarters of 2021, ooba's statistics show a well above inflation average purchase price growth of 9.4% during 2021, with an annual growth of 8.3% recorded in the average purchase price for first-time buyers.
About 57% of ooba's home loan approvals in the fourth quarter were granted by banks without a deposit requirement - about 4% higher than in the same period in 2020.
The oobarometer shows the average property price in the Western Cape was R1.90 million for 2021 - the highest in the country. Properties in the Free State showed the highest year-on-year price growth - off a base of the lowest average property price in the country, breaching the R1 million mark for the first time in 2021 at R1.02 million.
In general, the demand for luxury properties (those above R3 million) has increased and about 22% of ooba's granted home loans during 2021 fell into this category.
Shifts ahead
However, Dyer notes that interest rate increases could have an impact. Given that each 0.25% increase represents an approximately R150 per month additional repayment on a R1 million loan over 20 years, interest rate hikes could have a knock-on effect on affordability, demand and, in tur,n property price growth.
On Thursday the SA Reserve Bank's Monetary Policy Committee (MPC) increased the repo rate by 25 basis points to 4%, leaving the prime lending rate at 7.5%.
"We predict a shift in buying activity from the lower end of the market to the mid segment of the market, as the demand for home loans at the lower end of the market contract due to affordability constraints. The rent or buy calculation is expected to start shifting back towards renting from an affordability perspective, which may result in more buy-to-let investment buyers entering the market," says Dyer.
Mkhwanazi expects interest rates to increase by at least 75 basis points this year, on the back of rising inflationary pressures and less accommodative global monetary policy conditions.
"While this may have a cooling effect on market volumes (and eventually price growth), it is important to distinguish that the current wave of buying activity is predominantly driven by buyers who are less sensitive to interest hikes," he says.
"The slow recovery in the labour marker, combined with rising interest rates suggests a less supportive medium-term environment for home buying activity. However, if sustained, the ongoing shifts in housing needs, which has lent support to homeownership, could mitigate the impact."
