Lockdown and low-interest rates drive huge growth in home loan applications

The second quarter of 2020 (Q2 20) commenced with two months of lockdown for the real estate industry. Estate agents were only allowed to resume work on 1 June under Alert Level 3, with home buying accelerating in June due to pent up demand created by the lockdown as well as historically low-interest rates.

Rhys Dyer, CEO of ooba, says: “After extremely low business levels in April and May, we received a flood of home loan applications in June, up 51% compared to June 2019. This high level of activity has continued into July, with volumes in July up over 60% on the same period last year.

From a home loan perspective, this is a particularly appealing time to acquire property. Since January 2020, the prime lending rate has dropped by an unprecedented 27.5%, from 10% to 7.25%, with the potential for additional rate cuts before year-end.

“In June, ooba’s ratio of home loan applications from First-Time Homebuyers increased by 12%. Buyers who previously could not afford a home are entering the market for the first time due to lower interest rates,” says Dyer. 

“First-Time Homebuyers are also taking advantage of cheaper finance to buy more expensive properties. This can be seen in the 5.6% year-on-year increase in the Average Purchase Price of First-Time Buyers for the second quarter. Looking at June 2020 statistics alone, the First-Time Buyer’s Average Purchase Price was 13% higher than in June 2019.”

This surge of First-Time Buyers into the market saw the average age of ooba’s applicants drop from 38 in Q1 20 to 37 years old in Q2 20.  June 2020 statistics show that the average age has already dropped even further to 36 years old.

In June, 68% of our home loan applicants were asking for a 100% bond. This is 15% more than in June 2019, and banks are still coming to the party on these applications, with our approval rate on 100% bonds tracking at over 80%. The higher rate of lending without a deposit is reflected in the steep drop of 36.8% in the Average Deposit as a Percentage of Purchase Price year-on-year for the second quarter. Similarly, the Average Deposit for First-Time Buyers also fell by 34.8% for the same period.

The majority of the activity in the market appears to be focussed in a specific price band, with applications in the R750k to R2m price band showing the highest demand.

In terms of interest rates offered by banks, the average rate offered has increased by 0.15% year-on-year for the second quarter. The cost of funding for banks has increased and this increase is being passed on to homebuyers.  This means banks are offering fewer home loans at below prime lending rate than previously, and therefore it is even more essential to use a home loan comparison service such as ooba to secure the best interest rates in the market.

“Our latest statistics show that homebuyers who only obtain a single quotation for finance would have an interest rate that is 1.01% higher than if they had used a service like ooba to obtain comparable quotations from all major lenders,” concludes Dyer.   



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