• The loan-to-purchase-price ratio for residential properties in South Africa was higher in the second quarter of the year than at any time since 2008, a new report from FNB shows.
  • This as the value of home loans extended in South Africa grew by an unusually fast 4.9% in August. 
  • But despite bigger and more loans, overall house prices are still in decline when corrected for inflation. 
  • For more stories, go to Business Insider SA.

In the second quarter of 2019 the average loan-to-purchase-price ratio for residential properties in South Africa was higher than at any time since 2008, a new report by First National Bank shows.

At the same time the total value of home loans advanced grew unusually quickly.

And yet South African home prices continued to decline when corrected for inflation.

The FNB Property Barometer released on Monday showed that the loan-to-purchase-price ratio – the proportion of the price of a house banks will lend – improved from an average of 88% in the second quarter of 2017 to 90.6% in the second quarter of 2019. 

That means the average house buyer was putting down a deposit of less than 10%, across both first-time buyers and those who used the proceeds of homes they sold to buy new houses.

At the same time the credit amount given to South Africans, the value of mortgages overall, grew by 4.9% in August, FNB economist Siphamandla Mkhwanazi said, the highest rate of growth since November 2010. 

(supplied, FNB)
(supplied, FNB)

Mkhwanazi said since the beginning of 2019 - for the first time since June 2011 - the total mortgages offered has also outpaced the average house price growth. 

(supplied, FNB)
(supplied, FNB)

“Thus, not only has there been mild growth in the volume of mortgage transactions, but lenders are also, on average, willing to finance a relatively bigger proportion of the purchase price,” Mkhwanazi said. 

“It is difficult, however, to reconcile the rising average loan-to-price with the deteriorating macroeconomic environment and consumer credit scores.” 

FNB’s data showed that the growth in loan-to-purchase-price was primarily driven by middle- to higher-priced segments.

(supplied, FNB)
(supplied, FNB)

Overall, the FNB Property Barometer showed that residential properties achieved price growth of 3.7% in the third quarter, up from 3.4% in the second. 

This is still below South Africa’s 4.3% inflation rate, which means houses continue to lose value in real terms despite the increased lending. 

An FNB index that measures market strength and demand showed that the demand-supply gap was narrowing, influenced by a surge in the supply of new stock, particularly flats and townhouses, as well as growth in emigration-related sales. 

Receive a daily email with all our latest news: click here.

Also from Business Insider South Africa: