Standard Bank, which holds a leading position in SA’s home loan market, says it is seeing an uptick in activity from first-time buyers, an indication that consumers are expecting a cut in interest rates soon.
Toni Anderson, head of Standard Bank Home Services, said in May nearly half of home loans registered by the bank were taken by first-time buyers, with Gauteng, Western Cape and KwaZulu-Natal, seeing the most activity.
“It is encouraging to see a growing proportion of first-time buyers in our book. As the leading lender for first-time home buyers we have maintained a steady risk appetite to ensure ongoing support for aspirant homeowners. The rise in applications and loans directed towards first-time buyers shows the market's recognition and appreciation of our commitment,” Anderson said.
The bank’s data shows that about 48% of bond registrations it registered in the past five years involved first-time buyers and that the average loan value approved for first-time buyers in the past three years stood at just under R1m.
The “Big Blue”, as Standard Bank is referred to in financial services circles due to the size of its balance sheet, expects the Reserve Bank to cut the repo rate by 50 basis points (bps) before the end of the year, starting the cutting cycle at the September monetary policy meeting.
This view is shared by Nedbank, which also expects two interest rate cuts before the end of the year.
The Prudential Authority in its latest annual report said the performance of residential mortgages was especially affected by the interest rate hikes, as total defaults grew 36% year on year despite total credit extension growing at 3.97% year on year from February 2024.
“This is on the back of the increase in the uptake of mortgage loans by first-time home buyers due to the unusually low cost of borrowing during the period from 2020 to 2021 (the Covid-19 era),” the bank’s regulator said.
Consumers, and homeowners in particular, have borne the brunt of 14-year high interest rates, with the cost of credit having increased by a cumulative 475 basis points (bps) since the central bank began its monetary tightening in November 2021.
SA’s biggest four banks have about R98bn home loans in stage three, the last stage before a loan is deemed to be non-performing, reflecting the effect of high rates on consumers, according to Standard Bank data.
The bank said the surge in interest rates since November 2021 has put pressure on consumers, especially in repaying variable instalment loans such as mortgages and vehicle asset finance. The prime lending rate has risen 475 bps since November 2021 to 11.75%, which is 200 bps higher than a few months before the Covid-19 crisis hit.
The surge in rates, while necessary to curb inflation, resulted in a hefty 42% increase in monthly repayments for a 20-year home loan compared with November 2021.
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