With high interest rates stretching recent homebuyers to breaking point, André van Rooyen of PayProp says that many hopeful first-time buyers would be better off renting.
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Van Rooyen shares that a growing number of millennial homebuyers are taking to social media to share their disappointment after being slammed with surprise costs. Some of these include maintenance costs, levies and rates. But the biggest shock for many has been the increase in home loan repayments due to the persistently high interest rate – which, after the recent 0.25% drop is still the highest it has been since 2009.
Buyers’ fortunes, interest rate movements
Back in June 2024, when things were not much worse for buyers, one SA TikTok user, Dr Katlego Lekalakala, reported that the cost of her loan more than doubled from R8 000 per month to R17 000. Then, in September 2024, the South African Reserve Bank cut interest rates for the first time since 2020, bringing the prime lending rate to 11.5%.
Despite this drop, the prime rate sat at 7% before the first interest rate rise in November 2021, so South Africans are now paying approximately 64% more on their home loans compared to the start of the rate hike cycle. Even though some lenders are offering discounts to first-time buyers, these have been paltry when measured against the ballooning prime rate.
Renting a better way forward for first-timers?
Prospective first-time buyers are delaying their purchases for now. According to Ooba Home Loans, new market entrants accounted for 46% of applications in Q1 2024, down 3% from a year earlier and 10% below its peak in 2020.
Data from the PayProp Rental Index shows tenants have been quite well insulated from rising interest rates, even as homeowners saw their repayments double. Rental growth reached its highest point in almost seven years in Q2 2024, according to the PayProp Rental Index, but has been consistently below inflation until the last quarter. Rental payments have also been falling as a percentage of income, according to the PayProp Rental Index – and tenant groups at all risk levels enjoyed more disposable income as a percentage in Q1 2024 than in Q1 2023.
“Renting offers more flexibility than homeownership and makes it easy to move for a new job or try out a new area, as many people did during the pandemic,” says Van Rooyen. “While the stability offered by ownership is also attractive to first-time buyers, the risks of steep interest rate rises may encourage them to see renting as the safer option.”
For more information, visit www.payprop.com/
