Home loan approvals up

30 April 2018

The level of financial stress in the residential property market has declined significantly and has possibly been a major factor in the improvement in home loan approval rates to their highest level since the implementation of the National Credit Act.

FNB reported last week the estimated percentage of homeowners downscaling due to financial pressure declined noticeably from 14.2 percent in the fourth quarter of last year to 12.1 percent in the first quarter of this year.

John Loos, a household and property sector strategist at FNB, said this was the first decline in this indicator of financial pressure since the third quarter of 2016.

Loos said the estimated percentage of homeowners selling to downscale due to financial pressure rose from a low of 10.97 percent of total home selling in the third quarter of 2015 and had been elevated ever since to around 14 percent.

"Two percentage points is a noticeable decline, and though one quarter's survey results is not conclusive evidence of sustainably lower financial stress, it does point to agents as a group perceiving lower financial stress early in 2018.

"What is also significant is that even with the elevated percentage estimates through 2016 and 2017, the percentages were moderate compared to a major high point of 34 percent reached in the second quarter of 2009 around the time of the 'great recession' and previous interest rate peak," he said.

The lower levels of financial stress in the residential property market have possibly resulted in a relaxation in bank mortgage lending criteria, with mortgage originator ooba reporting last week that banks were showing an increased appetite to lend.

Rhys Dyer, the chief executive of ooba, said that in the first quarter of this year, ooba recorded the highest home loan approval rate in the more than 10 years since the National Credit Act was implemented.

Dyer said ooba's total approval rate of 76.9 percent was an increase of 4.9 percent on the approval rate in the first quarter of last year.

He said banks were also increasingly willing to lend the full value of a property without requiring a deposit, with ooba statistics showing that the average deposit for first-time buyers as a percentage of the purchase price had declined to 12.5 percent in the first quarter from 14 percent in the first quarter of last year.

Dyer said the average deposit over the entire market had also declined, by 6.4 percent year-on-year.

He said consumers appeared to be managing their debt much better and the current low interest rate lending environment, coupled with slower growth in property prices, meant getting a home loan was a great deal more affordable than it was 12 months ago.

"Although it's technically a buyers' market, these trends are also positive for homeowners struggling to sell their properties as it increases the pool of potential properties buyers can afford," he said.

Loos said three factors had contributed over the past year or so to an improvement in residential property market financial stress: the ongoing decline in the household sec tor's debt-to-disposable-income ratio; mildly improving economic growth, which strengthened household sector disposable income growth; and a mild reduction in interest rates last year and this year.

He said there had been a dramatic drop in household sector vulnerability due to a major decline in the level of indebtedness.

Go Back to News Main Page