South Africans are buying "more home" as the interest rate holds steady

Posted On Tuesday, 13 October 2020 00:43 Published by
Rate this item
(0 votes)

South Africans are not only buying more homes, as the interest rate holds steady at its lowest in more than 50 years, they are also buying “more home”


South Africans applying for bonds to buy property are getting more bang for their buck, as the lowest interest rate in more than five decades has contributed to a massive 20% increase in the average amount of the home loan submitted to BetterBond, compared with last year.

With five interest rate cuts so far this year and the prime rate holding steady at 7%, this is also the first year in more than 50 years that borrowers have an upper hand on cash buyers in the housing market. It is also the first time in the history of a democratic South Africa that it is more profitable to borrow than to buy a home for cash. “We believe that this radical shift in housing affordability has crossed an important threshold. And, that many would-be cash buyers will rather consider a home loan, and use the cash for other investments,” says Carl Coetzee, CEO of BetterBond.

“In September 2019, our average loan size was R1 million. A year later, notwithstanding the impact of lockdown, the average homebuyer is borrowing R1.2 million, says Coetzee. Seeing as the most recent FNB House Price Index (July 2020) shows the average value of homes has increased by only 1.4% year-on-year, house price inflation cannot be the only cause of this 20% increase in mortgaged amounts.

Coetzee adds that, as many households remain financially constrained, increased incomes are also not a reason for the increased borrowing. Homebuyers are offering smaller deposits than they were a year ago, which suggests that there is less cash available to pay deposits. On average, South Africans will make a 14% down payment when they buy a home today, compared to a much larger, 17% average deposit in September 2019. The smaller deposit accounts for another 3% of the 20% increase in average bond value, meaning that it can’t be explained by market dynamics alone, says Coetzee. “It’s therefore evident that most of the increase in the average amount that South Africans are borrowing must be going towards buying more valuable properties than they would have purchased a year ago.”

“South Africans have clearly done the math - those who are able to invest in property are seeing the benefits of the current interest rates; be it to buy a more expensive property than they would have been able to afford a few months ago, or to apply for a bond as a first-home buyer.” The good news is that the South African Reserve Bank forecast is for local interest rates to remain in single digits for the next two years, in line with global economic trends. Says Coetzee: “If these outlooks hold, South Africans will continue to be able to afford more home than ever before, which will drive the demand for property as buyers realise their dream home may be well within reach. We should see a sustained and steady growth in property sales for the immediate future.”

As more South Africans take advantage of what is really a once-in-a-lifetime opportunity, there’s no doubt that the demand for homes will increase, says Coetzee. “If demand overtakes supply, we will need to build more houses for the first-home buyers who can now afford their own property.” This will encourage job creation, which in turn will result in more people having the income they need to apply for their bond. “The cycle of demand for homes coupled with job creation and income generation, while the interest rate is at single-digit levels, will go a long way to stimulating South Africa’s economy, at a time when it is needed most,” says Coetzee.

Last modified on Tuesday, 20 October 2020 00:52

Most Popular

Residential property market gathering momentum, says Eazi Real Estate

Nov 18, 2020
In this last quarter concluding in December 2020, the residential property market…

Lockdown impacts buying trends of generations of home buyers

Nov 15, 2020
The Covid-19 pandemic and lockdown has been a catalyst for highlighting the different…

Second-hand shopping is being revolutionised and expanding the circular economy

Nov 18, 2020
EPP CEO_Tomasz Trzoslo
Conscious consumers are championing the resale of goods to reduce waste and extend the…

Pam Golding Properties awarded Best Real Estate Agency in South Africa in International Property Awards

Nov 18, 2020
IPA Awards Pam Golding Properties 2020 - 2021
Competing against real estate companies from around the country, this is the 14th year…

SA commercial real estate delivers in excess of 12% yield on equity

Nov 18, 2020
Steven_Brown (1)
A silver lining amongst the many dark clouds dominating South Africa’s current economy…

Please publish modules in offcanvas position.