Good news for South African homeowners

Demand for property among first-time buyers in South Africa is picking up, which could drive up the price of homes in the country as buyers anticipate interest rate cuts. 

This is feedback from Standard Bank, which noted a resurgence in first-time homebuyer activity in South Africa in recent months. 

In May, nearly half of all home loans registered by the bank were taken by first-time buyers following an uptick in the volume of applications in April and May. 

This follows a notable decline in demand from first-time buyers throughout 2023 and the beginning of 2024. 

The bank said the demand increase is potentially driven by expectations of imminent rate cuts as inflation trends downward. 

Standard Bank’s data indicates a recovery in the first-time homebuyers’ market since the first quarter when the Ooba Home Loans’ barometer indicated that the proportion of applications from these buyers had dropped to a low of 46%.

“The past three years have been challenging for homeowners,” said the head of Standard Bank Home Services, Toni Anderson.

“As the largest financier of first-time buyers and housing in South Africa, we promptly implemented support measures for our home loan customers.”

These measures included loans that offer more than 100% of the purchase price to first-time buyers to help them cover upfront costs, such as bond registration and transfer fees. 

“At Standard Bank, first-time buyers now qualify for up to 108% subject to risk assessment offers. This also shows that first-time buyers need more help to cover upfront costs,” said Anderson.

Below are other notable trends Standard Bank recorded from first-time homebuyers –

• 48% of all bond registrations by Standard Bank in the past five years involved first-time buyers.
• In the past year, Standard Bank approved an average of 50% of all applications it received from first-time homebuyers.
• The average loan value approved for all first-time buyers in the past three years stood at R975,000.
• Four in ten first-time buyers had a deposit.
• The average deposit was 24% of the selling price.
• Gauteng, Western Cape and KwaZulu Natal represent the top three provinces for first-time buyer activity.

This is a good sign for homeowners as it signals increased buying activity within the market, which tends to drive up prices. 

Interest rate cuts coming

Demand for property may experience a further uptick from interest rate cuts, which may come sooner than initially expected. 

Residential property demand was severely impacted by the Reserve Bank hiking interest rates by 475 basis points since November 2021 to comabt inflation. 

This raised the cost of financing a R1.5 million home by around R4,600 per month, significantly impacting the affordability of homeownership for South Africans. 

Inflation has remained sticky, forcing the Reserve Bank to keep rates at 15-year highs for just over a year. 

Trade Intelligence’s Grocery Shopper Report for 2024/25 showed that food inflation averaged 10.8% last year after rising 9.2% in 2022. 

This has been compounded by electricity tariff hikes, which have pushed the price of electricity up 12.7% compared to last year. 

Petrol prices have also risen sharply – by 17.1% in 2022 and 5.1% in 2023. As a universal input, increases in the fuel price raise the cost base of almost the entire economy. 

Thus, the Reserve Bank has had to keep rates higher for longer, significantly increasing the cost of raising new debt and paying off existing loans. 

However, there are signs that interest rate cuts are coming soon, with average inflation expectations two years ahead falling to 4.9% in the second quarter from 5.2% previously, according to the Bureau for Economic Research (BER).

These expectations are used by the bank’s Monetary Policy Committee (MPC) to inform its decision-making along with other economic data. 

The BER said that all social groups, including analysts, businesspeople, and labour officials, lowered their inflation forecasts for the entire three-year horizon of the survey. 

“On average, they anticipate inflation of 5.3% in 2024, 5% in 2025, and 4.9% in 2026,” it said. “Their five-year inflation forecast fell below 5% to 4.9% for the first time since the fourth quarter of 2021.”

The drop will help ease the MPC’s concerns at its last meeting that inflation expectations remain above the 4.5% midpoint of the bank’s target range, where it prefers to anchor them.

The reading and easing inflation pressures may pave the way for interest rates to be lowered later this year.