Improved outlook for first-time buyers

File picture: James White

File picture: James White

Published Jul 1, 2016


Johannesburg - The affordability of houses for first-time buyers had improved over the past 10 years, Standard Bank said.

Read also: Housing prices forecast to lag rising inflation

Standard Bank economist Siphamandla Mkhwanazi added that the bank’s finding that income versus house price growth had improved affordability over the period “can be extended more broadly to all home buyers”.

Income growth

“This is largely due to the median income of a first-time buyer growing faster than the median price of a house demanded by a first-time buyer, combined with historically low interest rates.

“With house prices lagging income and interest rates remaining low, thus anchoring the cost of servicing a mortgage, a median first-time buyer is in a relatively better position to acquire and pay for their home than a decade ago,” he said.

However, Mkhwanazi warned that from a business cycle perspective affordability was worsening because gross domestic product (GDP) growth was slowing and South Africa had entered a downward phase of its business cycle. He added that GDP drove income and the demand for mortgages as well as the appetite of banks for risk and consequently the supply of mortgages.

Standard Bank said the median income of a first-time home buyer had grown from about R15 000 in the first quarter of 2006 to R28 869 in the first quarter of this year while the prices of homes demanded by first-time home buyers grew from R360 185 to R625 000.

It added that income growth of 92 percent over this period had outpaced house price growth of 74 percent.

The bank said average remuneration per worker for those employed in the formal non-agricultural sector had grown 150 percent versus Standard Bank’s house price index, which showed growth of 85 percent on an average house.

Mkhwanazi said that even in the context of the average consumer, growth in income seemed to have assisted mortgage affordability.

He said the median first time home buyers’ instalment had grown by 81 percent from R3 510 to R6 345 in the past decade compared with income growth of 92 percent.

Mkhwanazi said that the slower growth in installments was aided by low interest rates for most of the 10-year study period. “This means that, in relative terms, monthly installments over the period have become less of a burden on the median first-time buyer due to their income growing faster,” he said.

Mkhwanazi said they estimated that 47 percent of mortgages granted to first-time buyers were to people in the emerging middle-income category and salaries and wages made up almost 70 percent of the revenue for the group.

He said low or negative GDP growth and consequent job losses therefore affected demand for mortgages by first-time home buyers and the performance of those mortgages that had already been granted.


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