Home loans - applications up 36%

Home loan applications last month reached their highest level in three years according to mortgage originator ooba. It says that home loan applications in March were up by 36% compared to the average monthly figure for last year.

However, ooba points out that home loan applications remained depressed and were almost 40% lower than those recorded at the peak of the property boom in 2007.

According to ooba, the average price of houses increased from R850 864 last year to 860 492 in the first quarter of this year.

Saul Geffen, ooba’s chief executive says that the results are both surprising and positive because the property market had been floundering for at least two years.

He says that house prices were not expected to rise this year so the increase recorded in the first quarter went against forecasts made by property analysts.

However, Geffen says that it will be necessary to wait until next month to see if the spike in loan applications is a sign that the property market is improving.

Geffen says that the value of home loans granted in March was the highest since October 2008 and the higher value of home loan applications is expected to continue for the rest of this year.

He says that the increase in the number of applications for a home loan may be a result of lower interest rates that make buying a property now particularly attractive for people in the affordable housing sector.

The average size of loans granted by the bank was 7% higher in the first quarter of this year at R725 973 compared with the same period last year.

The average deposit as a percentage of the purchase price dropped by 23,9% to 15,6% equivalent to R134 519.

The average deposit as a percentage of purchase price was 19,9% in February and 14,7% in January.

First time buyers returning to property market

And are currently responsible for almost half of all home loan applications.

First time buyers are making a steady return to the residential property market in South Africa, according to new statistics, which show that they are currently responsible for almost half of all home loan applications.

The research by ooba - South Africa's leading bond originator - has revealed that in 2010 the proportion of first time buyers as a percentage of total applications increased to 47.61%. This is the highest total since ooba began tracking the statistics, and is a 15.96% increase on the proportion of first time buyers since these records began in July 2005.

The change in profile of home buyers would signify a positive development for the local housing market. Higher levels of activity amongst first time buyers are generally a positive indicator for the housing market, as demand increases and there are positive knock-on effects.

A factor in the increased proportion of first time buyers would be the reduction in the number of property investors. With capital growth having curtailed, and buy-to-let investors having fallen away considerably, the relative proportion of first time buyers would naturally increase.

Further, as lending and economic conditions have been tough, existing homeowners have tended to hold on to their properties and renovate rather than trade up.

The reduction in interest rates of 650 basis points since 2008 would also have been a contributing factor to the increase in first time homebuyers. With rates now standing at a 30 year low, improved affordability has enabled many would-be homeowners to take the leap, as the cost of servicing a bond has reduced considerably.

This, combined with the easing in lending conditions, relatively low property price growth compared with recent years, low inflation rates and some real wage growth, combine to make this a favourable environment for the first time buyer to get onto the property ladder.

Possible first time buyers should aim to put down a deposit as those who do so are more likely to get their home loan approved and also obtain a more favourable interest rate on their bond. Homebuyers with a deposit have a much greater chance of home loan approval at favourable interest rates.