BetterBond
While the market was pleased to see a repo rate cut in September, at 25 basis points, it wasn’t as much as hoped for. However, now that interest rates have started what many believe to be a downward cycle, 2025 may well turn out to be a bumper year for the home loan industry.
The month in numbers
- 11.5% – new prime lending rate
- 6% – YOY increase in average nominal home purchase price
- 10% – YOY decline in average deposit required for first-time homebuyers
- R1.12 million – average home purchase price for buyers younger than 30
BetterBond index of home loan applications
Following a declining trend in home loan activity for 13 quarters, mainly because of a restrictive monetary policy, the BetterBond index of home loan applications started a modest recovery during the beginning of 2024. During Q3, the number of home loan applications increased by 4.5% (QOQ) and by a more modest 1.6%, compared to Q3 2023.
Prospective homeowners have been confronted by the highest prime lending rate in 14 years, which is not conducive to any meaningful expansion of residential property market activity. As a result, the number of home loan applications have declined by 31% since Q3 2021. During the two years prior to this period, home loan activity was brimming, with an increase in loan applications of 43%. Now that interest rates have started a downward cycle, 2025 may well turn out to be a bumper year for the home loan industry.
Average home purchase price
The widely anticipated decline in the prime overdraft rate only amounted to 25 basis points, which was met with a measure of disappointment by the property market in general and prospective homeowners in particular. At a level of 11.5%, the benchmark lending rate is still 150 basis points above the 10% level just before the COVID-19 pandemic and a full 450 basis points higher than in November 2021, when the monetary authorities started a relentless rate hiking cycle. The September rate cut was insufficient to lead to a raise in average home prices, although the YOY performance was quite impressive at 6% for all buyers and 7% for first-time buyers (FTBs).
With inflation now below the mid-point of the Reserve Bank’s target range of 3% to 6%, a further rate cut is widely expected in November. With a bit of luck, it will take the prime rate down to 11%.
Average deposit for home purchase
A welcome lowering of the deposits required for access to home loans occurred during Q3, with a QOQ decline of 3.8% for all buyers and an impressive YOY % decline of 10% for FTBs, on average. The YOY rate of increase in deposits for home loans remains in positive territory, but only marginally so, with FTBs and all buyers having to fork out 2.4% and 3% more, respectively, than a year ago.
Since the onset of the rate hiking cycle, the average deposit required for FTBs has virtually doubled, while it has increased by 60% for all buyers. Little doubt exists that further declines in the ratio between deposits and home purchase prices are in the offing, as this ratio is positively correlated with interest rates. This should act as an additional driver of residential property market activity in 2025
Regional composition of average bond value (12 months to Sept 2024)
During the past 12 months, the Western Cape maintained its number one position as the region with the highest home loan value, but a change has occurred for the silver medal position, namely an ousting of the Greater Pretoria region by Johannesburg’s North-Western suburbs. South Africa’s administrative capital is now in third position.
Mpumalanga retains position number four, having recently overtaken KwaZulu-Natal and also opening up a larger gap in terms of the average home loan value. Except for KwaZulu-Natal and North West, all the regions increased their average home loan values marginally.
YOY % change in the share of home loans per home price bracket (Sept 2024)
It is clear that the relentless rise in interest rates took a heavy toll on prospective homebuyers in the two lowest home price brackets, namely below R500k and between R500k and R1 million. During the 12 months to the end of September, the number of approved home loans in these two categories declined by more than 6.4% and 14.7%, respectively – a significantly steeper contraction than for the 12 months ended August 2024.
Conversely, the YOY change in the share of home loans for the two highest price brackets (R2 million to R2.5 million and R2.5 million to R3 million) increased by a substantially higher margin, namely 13.1% and 27.6%, respectively. The latter may be an indication of prospective homebuyers taking advantage of the current seller’s market, in anticipation of price increases when interest rates have dropped further.
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