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Homebuyers start to put on the brakes

The latest statistics from BetterBond Home Loans, SA’s leading mortgage origination group, show that the interest rate increases announced in January and again in July are finally starting to have an effect on buying activity in the residential property market.
 
In August, the figures show, the net number of home loan applications received by BetterBond showed a year-on-year decline of 2,8% - which was the first such decline since interest rates were increased by 50 basis points in January.
 
“It was the second rate increase of 0,25 basis points in July that seems to have finally made a dent in the very robust demand the market has been experiencing for the past two years,” says BetterBond CEO Shaun Rademeyer, “and then only because it made prospective buyers pause to think more carefully about being able to afford a home loan instalment as well as their other debt repayments if rates should rise again.”
 
This was particularly evident among first-time buyers, he says, who tend to be more credit-sensitive, and was reflected in a drop of almost 10% in the number of applications received from such buyers that contributed in large measure to the overall decline. 
 
“There is, however, no shortage of people still keen to buy once they can afford to do so, and it must be said that even now, activity levels in the market are well ahead of where they were in August 2012, when rates were at their lowest levels in more than 30 years.
 
“Our statistics show, for example, that the number of bonds granted in the 12 months to end-August, for example, was still 5,3% higher than the number granted in the 12 months to end-August 2012 – and that the total value of those bonds was a whopping 24,7% higher, at 27,3bn.”
 
Meanwhile, Rademeyer says, home prices are still increasing and low stock levels will probably ensure that they keep rising, although perhaps more slowly if additional interest rate increases materialize over the next 18 months as expected and affordability is further constrained as a result.
 
“The BetterBond figures reflect an 8% year-on-year increase in the average home price in August (compared to a 10,75% y/y increase in July), and a 5,9% increase in the average home price paid by first-time buyers (compared to a 7,6% y/y increase in July).”
 
The average approved bond size also increased further in the 12 months to end-August to R757 125, while the average percentage of purchase price required as a deposit continued to decline and now stands at 18,55%.
 
“This is a good indication,” he says, “of the banks’ continued confidence in the market and willingness to lend – as is the fact that BetterBond succeeded in getting approvals for 74,3% of all the home loan applications it submitted in the past 12 months, compared to 72,1% in the previous 12 months.”


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