This was the net result of trends in house price and income growth, and the mortgage interest rate remaining low, according to Absa Housing Review Q2 2013.
Absa says while there was notable improvement in home affordability, many households’ ability to take advantage of the improved housing affordability continued to be affected by factors such as employment, income, savings, living costs, debt levels, as well as credit-risk profiles (as reflected by the state of consumer credit records), the National Credit Act (NCA) and banks’ lending criteria in the case of the need for mortgage finance to buy a home.
Writing in the report, Absa Home Loans property analyst Jacques du Toit says stable interest rates have aided the housing market.
Banks’ prime and variable mortgage interest rates are currently at 8.5 percent per annum and with these lending rates at their lowest level in 40 years, monthly mortgage repayments are in general 35.9 percent lower compared to early December 2008, when the mortgage rate was at a level of 15.5 percent per annum, he says.
“The continued low mortgage interest rate is beneficial to the affordability of mortgage finance, supporting the demand for housing and consumers’ ability to take up credit to buy property.”
Du Toit says the interest rate decisions are expected to remain a reflection of global and domestic economic developments and prospects, as well as the outlook for headline consumer price inflation and the factors affecting inflation.
The report reveals that the average nominal price growth of affordable housing (40 to 79 square metres and priced up to R515 000 in 2013) recorded growth of 5.7 percent year-on-year (y/y) in Q1 2013 from 6.5 percent y/y in the preceding quarter.
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In real terms virtually no y/y price growth was recorded in the first quarter.
Du Toit points out that growth in the value of outstanding household mortgage balances remained subdued at below 3 percent y/y in the early months of 2013, still reflecting the state of household finances, consumer credit-risk profiles, consumer confidence and residential property market conditions in general.
The ratio of outstanding household mortgage debt to disposable income was lower at about 40 percent in Q4 2012 from 41percent in the third quarter.
Households’ outstanding mortgage debt came to 52.6 percent of total debt balances in Q4 2012, down from 53.8 percent in the third quarter.
The cost of servicing household mortgage debt as a percentage of disposable income was slightly lower at 3.4 percent in Q4 2012 from 3.5 percent in the third quarter.
He says this came on the back of growth in household mortgage debt and nominal disposable income, leading to a lower mortgage debt ratio, while the mortgage interest rate remained stable in the fourth quarter.
Although real salary increases are not expected to reach 3 percent (2.5 percent), there are signs that South Africans are prioritising home buying and are prepared to save to get the necessary deposits and legal fees.
According to Mike van Alphen, national manager of the Rawson Property Group bond origination division, would-be buyers are for the first time more aware of extra costs involved in buying a home.
Van Alphen explains that they have seen encouraging growth in the size of bonds at roughly 16 percent y/y, noting that a high percentage of clients were first-time buyers making up 45 percent in this category in Q4 2012.
“We have also seen an increased ability to find the 10 or 15 percent deposit and on top of all these encouraging statistics we have also seen an improvement in our bond approval rates, from 62 percent in Q4 2012 to 65 percent in Q1 2013."
He says Rawson Finance’s status analysis ties in closely with that recently published by the May/June issue of the Property Professional. This showed, among other things that:
• The Western Cape is still the province where residential property prices are the highest in South Africa – according to Absa’s latest housing review the nominal house prices for Q1 2013 was R1 138 884 in Gauteng and R1 250 884 in the Western Cape.
• Buyers are young – 55 percent of all buyers are aged between 26 to 45.
• The time taken to get a bond approval has now been shortened from six days on average in Q4 2012 to three days in Q1 2013.
Van Alphen says it is far too early to talk about a revival in the residential property sector, but it is clear that South Africans are becoming more conscious of the value of property investment and have adjusted to the more difficult conditions imposed by the NCA and the banks.
Meanwhile, ooba reports that the value of home loan applications received and processed by ooba in April was 50 percent higher y/y while the value of approved home loans was 30.5 percent higher y/y, the mortgage originator’s best performance in five years.
Saul Geffen, ooba chief executive officer attributes this growth to ooba having doubled its market share, as well as to increases in the number of applications received, higher property prices, lower deposit requirements and increased home loan approval rates.
For the past six-month period, ooba’s approved home loans value was up 28.5 percent compared to the same period the prior year.
The value of approved home loans in April was 317 percent higher than January 2009, ooba’s lowest month during the property and financial crisis, he explains.
Geffen points out that currently, one in every five South African home buyers uses ooba to secure their home finance.
He says ooba obtains approval for 72.5 percent of the home loan applications it facilitates, comparing favourably with the average bank approval rate of 54 percent across the major lenders.
“This essentially means that home buyers have a 34 percent better chance of getting their home loan approved when using ooba,” he adds. – Denise Mhlanga
Source: Property24
