The last Monetary Policy Committee (MPC) meeting kept the repo and prime lending rates unchanged for 14 months. However, experts predict a more positive outlook for Q4 2024.
Gavin Lomberg, CEO of ooba Home Loans, stressed the need for relief in the current high-interest environment. “We strongly believe that a rate cut will be the key to unlocking higher volumes of activity in upcoming months.”
While a return to the historic low rates of 7% seen during Covid-19 is unlikely, Lomberg notes speculation about a 25 basis points (bps) rate cut soon.
“The reasons for this centre around the moderating of local inflation – notably food and petrol prices - and the easing of US inflation. And, as the country continues on the path towards an imminent rate cut, we anticipate a slow rise in homebuyer confidence, more competitive bids for homes and a steady return of first-time homebuyers to the property market.”
Impact of Rate Cuts
Lomberg believes rate cuts will boost market activity and homebuyer confidence. “When rates do soften, we believe that homebuyer confidence will increase, resulting in stronger market activity and more competitive offers on homes."
However, he cautions that it will take time. “While a 25-basis points rate cut will not solve all our problems, it does signal the start of the rate-cutting cycle and is set to bolster confidence in the market.”
Increased competition among homebuyers is expected to benefit sellers, leading to more competitive bids and higher asking prices. “As it stands, we are seeing increased purchasing power from buyers aged 18 to 36 while homebuyers aged 37-years-plus are purchasing less expensive properties than they were last year,” said Lomberg.
Investment property demand remains strong, with the highest quarterly average in Q2 2024 at 12%. Lomberg hopes this will increase as rates decrease.
“What will be most interesting to observe is the growing interest from Gen Z homebuyers for buy-to-let properties. In Q2 ‘24, 9.2% of all applications received from buyers in this age group were for the financing of investment properties.
"This is significantly up on the 3.0% recorded in this category of property acquisition by Gen Z buyers in 2019,” said Lomberg.
Rate Cuts Affect Gen Zs
First-time homebuyers currently make up 46% of ooba Home Loan’s customer base, down from 56% in May 2020. “Based on this downward trend, it’s clear to see that first-time homebuyers are feeling the effects of a higher for longer interest-rate environment and the rising cost of living,” said Lomberg.
He expects this trend to reverse with predicted rate cuts. “The idea of homeownership certainly appeals to first-time homebuyers, especially the incoming generation of purchasers – Gen Zs who have in fact registered a 30% increase in the average purchase price paid over the past five years (aged 18 to 25),” said Lomberg.
“The banks aren’t easily deterred,” notes Lomberg. “The country’s major lenders continue to back buyers, offering competitive interest- and approval rates.”
Despite the prime lending rate rising from 7% to 11.75% over four years, banks have maintained support for homebuyers. Approval rates remain steady, with only a minor dip year-on-year (-0.7% in Q2 2024). Lomberg expects bank approval rates to strengthen with anticipated rate cuts, making financing more accessible.
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