Home Loan Market

Private Property South Africa
Gina Schoeman

Gina Schoeman of Standard Bank recommends getting to know your market to

ensure that you select the best possible home loan opportunity when buying a


When purchasing a home, it is meaningful to become familiar with the residential

property market in South Africa. However, it is additionally important to

understand the dynamics of the home loan market, as this may assist the

individual in selecting the appropriate type of home loan, given his/her

personal circumstances. Home loans or mortgage bonds, depending on which country

one resides in, can differ as much as the name assigned to it. For simplicity

sake, this article will use the appropriate South African term, home loan.

In order to understand the South African home loan market in a global context,

one must first understand the internal conditions affecting the different

property markets of various countries. Since 1997, South African house prices

have recorded one of the highest growth rates globally (see Figure 1). House

prices have had a good run, although there is increasing evidence that the

residential property market has run out of steam. The early performers, such as

the UK and Australia, have witnessed a slowdown to levels sometimes close to

negative, as has been the case for a while now in Germany and Japan (Figure 2).

However, earlier fears of a bursting bubble seem to have been exaggerated, as

the slowdown in global house price growth rates generally seems to be gradual.

South Africa, the US and France joined the party at a later stage, and although

remaining relatively robust, house price growth is no longer at its earlier

peaks. Negative growth rates are not expected, although they cannot be ruled out

entirely. Rather, as in the recent past, most countries are expected to have

gradually decelerating house price growth rates.

The differences in the house price growth paths between different countries are

at least partly attributable to differences in their structures. Table 1

presents an international comparison of some of the key property market

characteristics, which assist in the comparison of the different types of home

loans available.

The table clearly illustrates South Africa's low level of residential mortgage

debt in comparison to other countries. This, however, must be interpreted in

context of the difference in interest rate levels between the countries. For

example, the US is able to sustain higher residential mortgage debt due to a

lower interest rate environment. Should South Africa experience single digit

interest rates in the future, it may be expected that residential mortgage debt

will rise, but that this will be due to a higher level of affordability, given

lower interest payments.

House price growth is clearly no longer at its earlier heights and the

deceleration is firmly entrenched. For this reason, the various options made

available in the home loan market are powerful tools for the individual in

selecting the best possible opportunity when purchasing a home. Changes in the

interest rate impacts property values almost immediately for up to a year

following the change, with the most significant influence being felt three to

five months later. Therefore, the effect of the latest two interest rate hikes

is expected to be most pronounced toward the end of 2006, and the beginning of

  1. These hikes are likely to further constrain house price growth in the

short term. As a result, it is recommended that individuals understand the

dynamics of the South African home loan market, so that the most optimum home

loans are chosen, assisting in a higher responsibility of debt management.

[Click here for Table 1: International

residential property market characteristics](https://www.privateproperty.co.za/news/images/200609/stb_table.pdf)

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