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ooba - slowing property price growth under more constrained home loan lending conditions

Quarterly property statistics released by ooba, South Africa’s largest bond originator, show that residential property price growth is slowing as the supply of residential property outstrips purchasing demand.
 
“Although the Average Purchase Price increased by 5.9% in Q3 of 2016 compared to Q3 in the previous year, the rate of growth is slowing, with Q3 property price growth reflecting a 3.3% decline over Q2.  When adjusting for inflation, house price growth is struggling to show any real year-on-year growth.” 
 
The Average Purchase Price of First Time Home Buyers in Q3 increased 7.2% year on year, indicating slightly stronger demand fundamentals for property in the First Time Home Buyer market.  However the rate of growth in this market is also slowing.
 
Average deposits have remained fairly stable, with Q3 2016 reflecting an average deposit of 15.4% of purchase price relative to the 15.9% in Q3 of 2015. 
 
“There has been a worsening in year-on-year average bank decline rates, with average bank decline rates increasing from 43.2% in Q3 of 2015 to 47.9% in Q3 of 2016.  Whilst there has been some limited tightening from banks, a significant factor in the increased decline rates is the worsening affordability of home buyers.
 
Applications to ooba from customers requesting 100% bonds declined from 51% in Q3 2015 to 44% in Q3 2016, signalling that home buyers are increasingly aware of the importance of a deposit to secure a home loan,” adds Dyer.
 
According to the ooba statistics, first-time home buyers remain the most significant contributor to home loan volumes, making up 53% of all ooba’s applications in Q3 2016, up by 1% from Q2 2016’s 52%, and unchanged from Q3 2015’s 53%.
 
“In Q3 2016, 61% of all ooba’s applications were from Black home buyers, up by 1% on Q3 2015. As an indicator of the ongoing transformation of the housing market,  73% of all first-time home buyer’s applications received in Q3 2016 were from Black home buyers, up by 2% from Q3 2015” says Dyer.
 
Self-employed applicants made up only 10% of all ooba applications in Q3 2016, yet accounted for 17% of the value of applications received.
 
Despite the Average Bank Decline Rate of 47.9%, ooba’s business model of submitting to multiple banks ensured an approval rate of 71.3% for its customers in Q3 of 2016, which is slightly down from the 73.1% approval rate obtained in Q3 2015. This drop in approval rate is largely driven by worsening consumer affordability.
 
The average interest rate relative to prime on all business concluded by ooba in Q3 2016 was prime plus 0.45%, which is up from prime plus 0.32% in Q3 of 2015.  This is indicative of increased bank risk and costs of funding.
 
“Recent data from SARS shows household disposable income remains under pressure. Coupled with a reduced supply of household credit, subdued economic growth, a softening labour market, job insecurity, inflationary pressures and lower wage inflation, the financial pressure on consumers is expected to continue for the medium-term.”
In the current environment, applying for a home loan is increasingly complex. Dyer recommends using the services of a bond originator to ensure the highest chance of approval. ooba’s free prequalification service also ensures that applicants house hunt in an affordable price bracket.
 
“While we do the legwork to ensure our applicants obtain a successful bond approval with the most favourable terms and conditions, our home buyers focus on finding their dream home. Despite marked changes in the property market, ooba’s bond approval rate remains one of the highest approval rates in the industry.  We consistently secure approvals for over seven out of ten home loans we process,” concludes Dyer.



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