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New data from BetterBond shows that there has been a steady amount of home loan applications over the last year, and first-time homebuyers may find more promising buying opportunities in the medium term.
The company’s latest property brief for June reported that although evidence showed a decline in inflation, the South African Reserve Bank (SARB) raised the interest rate by 50 basis points.
“South Africans are optimistic that the recent decrease in the Consumer Price Index, falling below 7%, will bring an end to the ongoing cycle of interest rate hikes. This potential outcome could lead to a resurgence in the property market later this year and throughout 2024,” said BetterBond.
According to BetterBond, there has been a decline in new home loan applications, particularly for first-time buyers – it said that this should be seen against the backdrop of a 68% increase in the cost of servicing debt since November 2021.
The group said, however, that a combination of substantial formal job section creation over the first quarter of 2023 as well as the new downward trend in the inflation rate, could herald relief for homebuyers.
The graph below shows the decline in the percentage of first-time home buyers:
The average home purchase price for first-time homebuyers has remained lower than the majority of buyers, with it averaging around R1.2 million, R300,000 less than those who have previously purchased a home, at R1.5 million.
The average home price has shown a consistent increase, with a 3% rise in the first five months of 2023 compared to the first quarter of 2022, reported BetterBond.
However, there was a slight decline in the average home price for first-time buyers over the 12-month period leading up to May 2023, but it remained relatively stable and comparable to the year-on-year average.
According to the company, the top three areas in South Africa in terms of the average home loan value for first-time homebuyers over the past 12 months have been:
- The Western Cape
- Pretoria
- Mpumalanga
BetterBond said that it is notable that Mpumlanage has overtaken KwaZulu-Natal and the North-Western suburbs of Johannesburg during this time, in a trend that could indicate that semigration is spreading farther and wider than only to coastal provinces.
The graph below illustrates this trend:
Gauteng accounts for more than half (52%) of all home loan applications from first-time buyers, reported BetterBond.
BetterBond said that some of the major challenges affecting younger generations in buying a home include:
- Youth unemployment
- Student debt
- Lack of credit history
- Unstable jobs
Economist Roelof Botha said that the possibility of newcomers entering the property market might be lifted by the 250,000 new jobs created in South Africa during Q1 2023.
In understanding the psychology of millennial and Gen-Z homebuyers, BetterBond said that buying a home is still desired; however, it is seen more as a way of building equity.
“Not being able to save a deposit is not a deal-breaker, however, as some banks offer 105% and 110% bonds. (In the UK, 35-year mortgages are at record highs as lenders go all out to attract young homebuyers into the market amidst interest-rate rises),” said BetterBond.
Read: Reserve Bank rate hikes coming home to roost
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