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First time home buyers score

By Danielle van Wyk

According to a Standard Bank study homes for first-time buyers appear to be cheaper than a decade ago. The study highlights relevant South African consumer trends at both macro and micro level.

The study conducted by Standard Bank economist, Siphamandla Mkhwanazi analysis the bank’s mortgage applications data.

“We use Standard Bank’s mortgage applications datato assess how the affordability of homes for first-time buyers has changed since 2006, from both a structural and a cyclical perspective. We do this by tracking Standard Bank’s two affordability indices for median first-time buyers i.e. SBR’s price-to-income ratio (PTI) and instalment-to-income ratio (ITI). As part of our cyclical affordability assessment we also monitor the size of a median loan granted as ratio of the purchase price, or loan-to-price index,” explained Mkhwanazi.

The study can be interpreted as a ‘means test’ for aspirant buyers.

“Comprising 19% of net household wealth (as at 2015), residential assets are an important determinant of SA’s consumptive capacity and driver of living standards. Given that Standard Bank has the biggest mortgage book by value in SA, we believe that our net is cast wide enough to capture a representative first-time buyer in SA,” Mkhwanazi said.

Main findings

Analysing income, house price and instalment trends for a first-time buyers over the last decade, the report showed that mortgage affordability has structurally improved.

“This is largely due to the median income of a first time buyer growing faster than the median price of a house demanded by a first time buyer, combined with historically low interest rates. With house prices lagging income, and interest rates remaining low, thus anchoring the cost of servicing a mortgage, a median first-time buyer is in a relatively better position to acquire and pay for their home than they were a decade ago,” stated Mhkwanazi.

However, from a ‘business cycle perspective affordability is worsening’, this is as a result of GDP slowing down and South Africa having entered a downward phase in our business cycle, added Mkhwanazi.

We note that in the last downward phase of SA’s business cycle, income growth took a while to respond to slower GDP growth. In keeping with this trend, as SA entered the latest downward phase of its business cycle in December 2013, income growth continued to rise for almost two years, and began slowing in Q3 2015,” Mkhwanazi explained.

So while first time buyers seem to be in a better place than ten years ago, with recent economic activity, buying a home is still out of reach for most. But should you be in the fortunate prospective-buyer position, now might be a good time to start looking into making the investment.

  Handy tip: Do you want to apply for a home loan or save money on your home loan? Click here. 

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