Fewer people buying homes as interest rates bite

Home loan applications have dropped significantly in the past year. Picture: Pavel Danilyuk/Pexels

Home loan applications have dropped significantly in the past year. Picture: Pavel Danilyuk/Pexels

Published Oct 18, 2023


Home loan applications have dropped by 20 percent in the past year as interest rate hikes strangle property market activity in the country.

There are signs that sales activity may be starting to settle as the rate stabilises, but property buying may only really start showing a noticeable increase once the interest rate starts coming down.

Some positive news, however, is that those who have bought property in the past year spent a little bit more on their homes, despite the higher home loan repayments.

The latest BetterBond Property Brief reveals that the number of home loan applications in Q3 2023 is 20 percent lower than the number in Q3 2022, but there has been a small increase of three percent over the past three months. With inflation seemingly under control and close to the mid-point of the Reserve Bank’s target range, it is hoped that home buying will start increasing.

“Should interest rates start coming down, it could herald an upswing in the residential property market.”

The economic climate, however, has taken its toll on the value of home loan applications in Q3 2023 compared to the previous quarter as, while Q3 2023 saw year-on-year increases in average home purchase prices, there was a marginal quarter-on-quarter decline. This confirms the persistence of tough trading conditions in the residential property market.

“Average home purchase prices are only expected to start increasing at meaningful rates once the Reserve Bank relaxes its hawkish monetary policy,” the report states.

Average approved home loan values are also lower because of increases in deposits required for home purchases by both repeat and first-time buyers.

Data shows that the average purchase price at the end of September 2023 was R1,472 million, an increase of 2.89 percent year-on-year. For first-time buyers, the average purchase price is R1,2m, which is 1.5 percent higher than a year ago.

First-time buyers still purchasing homes

Even though it is tougher for first-time buyers to come up with deposits as they don’t have the same collateral security as repeat buyers or profit from the sales of previous homes, they managed to retain a share of more than 60 percent of all home loan applications, Betterbond says.

“While the Q3 2023 figure of 62.6 percent marks a slight decline from 65.3 percent in early-2021, the quarter-on-quarter increase of 1.3 percent, albeit marginal, is a positive sign for this important segment of homebuyers.”

Still, first-time buyers’ affordability has been eroded through increased home loan repayments due to interest rates being at 15-year highs, and remuneration levels in most sectors of the economy struggling to keep pace with inflation over the past 18 months.

“Fortunately, formal sector job creation has continued positively in 2023 and a relaxation of monetary policy by the Reserve Bank could see renewed activity from first-time buyers.”

The research shows that, during the 12 months to September 2023, first-time homebuyers were most active in the regions that are home to the largest metropolitan municipalities. The BetterBond regions of Greater Pretoria, Johannesburg, Western Cape, and KwaZulu-Natal accounted for 80 percent of home loans granted to first-time buyers.

“Apart from demographics, urban areas often contain a larger diversity of economic sectors and therefore attract people with higher-paid skills.”

Reflecting the number of home loan applications received in the past year, Deeds Office registrations have also declined as a result of interest-rate hikes. However, these numbers took a positive turn during Q2 2023, rising more than eight percent from the previous quarter.

Year-on-year, this number is still down by more than 16 percent, with lower interest rates required for a meaningful and lasting recovery, the report says.

Most popular suburbs for home buyers

The RE/MAX National Housing Report for Q3 2023 shows that the Western Cape was again the most searched province on the agency’s website, claiming the top five search positions. The most-searched suburbs from July to September were:

1. Claremont, Western Cape

2. Gardens, Western Cape

3. Parklands, Western Cape

4. Sea Point, Western Cape

5. Rondebosch, Western Cape

Although sales in the Western Cape were higher than in Gauteng, other provinces that performed well, according to RE/MAX data, include Limpopo, the Northern Cape, and the Free State, which all showed increases in the total registration values when compared to the same period last year.

More people are still buying freehold homes than sectional title properties.

South Africans still want to buy property

Despite high interest rates, Adrian Goslett, regional director and chief executive of RE/MAX of Southern Africa, says the demand for housing remains strong.

“Regardless of how the overall market is performing, I have no doubt that a well-priced home listed by a reliable real estate professional will have no trouble selling. That being said, we remain hopeful that interest rates will stabilize soon and that the external factors will become more favourable to stimulating growth within the local housing market and the broader economy in general.”

In the BetterBond Property Brief, economist Dr Roelof Botha advises prospective homebuyers to keep an eye on the rand exchange rate as any significant currency depreciation always leads to higher import prices, which then feeds into domestic inflation.

“The Reserve Bank has a reputation for being very cautious about any lingering fears over higher prices and a weak currency may thwart chances of cuts to interest rates before the end of the year.”

IOL Business