Bond applications up 40% | Affordability shrinks time homes spend on the market to 8 weeks

Homebuyers can afford up to 30% more than they could a year ago, and the number of bond applications being submitted shows South Africans are taking full advantage.

“With the prime lending rate currently at 7%, the lowest it has been in 55 years, the property market is enjoying an unexpected boom. Notwithstanding the challenges of the pandemic, the knock-on effect of five consecutive repo rate cuts last year, has resulted in a significant market turnaround that is showing no sign of slowing down,” says Carl Coetzee, CEO of BetterBond. 

Many homebuyers have been able to afford up to 30% more than they could in January 2020, when the prime lending rate was at 10%.

"South African first-time buyers across the country continue to capitalise on the favourable buying environment and demonstrate confidence in the residential property market by acquiring their own homes," adds Dr Andrew Golding, chief executive of the Pam Golding Property group.

“The fact is, approval ratings remain elevated when compared to prior years, suggesting that the aggressive interest rate cuts in the first half of 2020 have ensured that more applicants are now eligible for a mortgage than was previously the case.”

“The fact is, approval ratings remain elevated when compared to prior years, suggesting that the aggressive interest rate cuts in the first half of 2020 have ensured that more applicants are now eligible for a mortgage than was previously the case.”

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Coetzee adds that, while the South African Reserve Bank has projected two interest rate hikes of 25bps each in the second and fourth quarters of the year, SARB governor Lesetja Kganyago recently indicated that an “accommodative” approach is more likely to support the economy for as long as possible.

“It would make sense to keep the repo steady at or below 4% for as long as possible, for the effects of the lower lending rate to have the desired impact,” said Coetzee.

“Furthermore, even if the repo rate does increase by 0.5% later in the year, the prime lending rate will still be at its lowest in five decades. It’s unlikely that consumers will see a prime lending rate of more than 10% for a few years yet.”

The table below shows the difference a prime lending rate of 7% makes on a monthly bond repayment, compared with the 10% lending last seen at the start of 2020.

'From 14 weeks to eight weeks'

After a year of low interest rates, the housing market is still showing signs of strengthening, says Coetzee. “House prices, a good indicator of the state of the market, are increasing with house price inflation sitting at 4.5% for March. This is a significant improvement on the 2.5% recorded in March 2020.”

Also positive is that the average time homes are on the market has dropped in the past year from 14 weeks to eight, adds Coetzee. Demand is outpacing supply, with property portals reporting as much as a 16% drop in listings.

Bond application volumes continue to increase, says Coetzee. “In March, the volume of bond applications increased by 40% year-on-year, with close to 70% being from first-home buyers,” he added.

“The sustained low interest rate environment will go a long way to stimulating the property market, and indeed the economy. While the honeymoon is certainly not indefinite, there is some comfort in knowing that the repo rate is likely to remain at, or below, 4% at least until September next year, creating opportunities for buyers to apply for a bond for their dream home.”

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