Home buyers start to put on the brakes.

The latest statistics from BetterBond Home Loans show that the interest rate increases announced in January and again in July, are finally starting to have an effect on buying activity in the residential property market.

Home prices are still increasing and low stock levels will probably ensure that they keep rising, although perhaps more slowly if additional interest rate increases materialise over the next 18 months, as expected, and affordability is further constrained as a result.

August’s figures show that the net number of home loan applications received by BetterBond declined year-on-year by 2.8 percent, which was the first such decline since interest rates were increased by 50 basis points in January.

BetterBond CEO, Shaun Rademeyer, says it was the second rate increase of 0.25 basis points in July that seems to have finally made a dent in the robust demand the market has been experiencing for the past two years, and then only because it made prospective buyers pause to think more carefully about being able to afford a home loan instalment as well as their other debt repayments if rates should rise again.

He says this was particularly evident among first-time buyers who tend to be more credit-sensitive, and was reflected in a drop of almost 10 percent in the number of applications received from such buyers that contributed in large measure to the overall decline. 

Rademeyer says there is, however, no shortage of people still keen to buy once they can afford to do so, and it must be said that even now, activity levels in the market are well ahead of where they were in August 2012, when rates were at their lowest levels in more than 30 years.

“Our statistics show, for example, that the number of bonds granted in the 12 months to end August were still 5.3 percent higher than the number granted in the 12 months to end August in 2012, and that the total value of those bonds was a whopping 24.7 percent higher, at R27.3 billion.”

Meanwhile, Rademeyer says home prices are still increasing and low stock levels will probably ensure that they keep rising, although perhaps more slowly if additional interest rate increases materialise over the next 18 months, as expected, and affordability is further constrained as a result.

The BetterBond figures reflect an eight percent year-on-year increase in the average home price in August (compared to a 10.75 percent year-on-year increase in July), and a 5.9 percent increase in the average home price paid by first-time buyers (compared to a 7.6 percent year-on-year increase in July), he says.

The average approved bond size also increased further in the 12 months to end August to R757 125, while the average buying price percentage required as a deposit continued to decline and now stands at 18.55 percent.

Rademeyer says this is a good indication of the banks’ continued confidence in the market and willingness to lend, as is the fact that BetterBond succeeded in getting approvals for 74.3 percent of all the home loan applications it submitted in the past 12 months, compared to 72.1 percent in the previous 12 months. www.property24.com