We compared South Africa’s ‘big four’ banks—Absa, FNB, Nedbank, and Standard Bank—offer first-time home buyers as they compete for a share of the smaller home loan market amid the rising cost of living and high interest rates.

According to Rhys Dyer, CEO of Ooba Group, in Q1 2024, the volume of home loan applications processed was down by 9% from Q1 2023 and down 25% from Q1 2022.

However, we saw an 8% increase in application volumes in Q1 2024 compared to Q4 2023, and there is definitely more activity in the market.

He said the uptick in property prices, first-time homebuyer deposit values, and buy-to-let investments against steady bank approval rates are all positive trends.

The first-time homebuying frenzy in May 2020, when interest rates dropped to 7%, saw this segment accounting for a record 56% of Ooba Home Loans’ applications.

However, this percentage decreased to 46% in Q1 2024, indicating that first-time homebuyers are sensitive to interest rates during harsh economic conditions.

Rhys Dyer, CEO of Ooba Group, noted a further 3% year-on-year contraction in activity from this market segment.

According to Dyer, prospective homebuyers are postponing their first property purchase until interest rates decrease and inflationary pressures are reduced.

Meanwhile, these buyers are using the delay to accumulate savings to finance a larger portion of their purchase, recognizing the long-term financial benefits of making a deposit.

What the banks offer

In light of the tough conditions, Dyer pointed out that the country’s lenders are easing pressure on homebuyers by still offering attractive discounts to prime. The average weighted rate of concession is now at -0.52%, which is seven basis points cheaper than Q1 2023.

This is a welcome relief in a time of high interest rates and monthly instalments.

The banks are competing for a share of the smaller home loan market, making finance more accessible by easing terms and conditions and offering better rate discounts.

This, in turn, has a positive impact on affordability. Dyer also mentioned that “the banks continue to offer additional rate concessions as an incentive for new-to-bank customers.”

South Africa’s major banks offer first-time buyers to make it easier to compare what you’re likely to be in for if you’re looking to buy a home. The banks include Absa, FNB, Nedbank, and Standard Bank.

These banks offer a home loan of between 106% (Absa) and 110% (FNB). FNB, Nedbank, and Standard Bank all offer a maximum term of 30 years, while Absa offers a maximum of 20 years.

Additionally, all the banks offer interest rate discounts from 0.25% to 0.75%, while Standard Bank notes this depends on your credit score.

They also offer a discount of up to 50% on registration costs.

Absa FNB Nedbank* Standard Bank
Home loan up to 106% 110% 109% 108%
Max purchase price <R2.5 million <R1.8 million <R5.0 million <R2.2 million
Max home loan term 20 years 30 years 30 years 30 years
Interest rate discount 0.25% 0.25% up to 0.75% Based on credit score
Discount on bond registration 50% 50% 50% 50%
*Nedbank updated their parameters as of 18 June 2024.

Things to bear in mind

Before diving into a home loan exceeding 100%, it’s crucial to weigh the pros and cons.

While this option provides an opportunity for young buyers to enter the real estate market, it also translates to higher monthly repayments.

For example, if a buyer secures a R1.5 million home loan over 20 years at an 11.75% interest rate, the monthly payment would be around R16,255.

If the loan amount increases by 5% to R1.575 million, the monthly instalments would jump to about R17,068.

This means the buyer would need to pay an additional R813.

Opting for an additional 5% on your home loan also results in increased interest payments on top of the extra capital.

Evaluating whether the added expenses are manageable alongside the existing 100% home loan is essential.