Residential property shows signs of life, but lower prime rates are crucial for demand

While residential property is slowly but surely building up steam, the pace of recovery of demand will only gain traction once the prime rate has returned to its pre-Covid level of 10% or (preferably) lower.

This is according to the September 2025 BetterBond Property Brief released on Monday.

The impact of interest rate changes on the residential property market is predictable and has been vividly demonstrated by the latest reading of the BetterBond index of home loan applications, says Bradd Bendall, the national head of sales at BetterBond. 

“In reaction to the latest interest rate cut, which took the prime rate down to 10.5%, this index increased by 11% quarter-on-quarter (QOQ) and by 14% year-on-year (YOY) during July and August.

"In the process, the number of home loan applications reached its highest level since the third quarter of 2022 (Q3 2022), when the record-high interest rates started biting into the pockets of prospective homebuyers. 

Houses priced up to R1 million accounted for 44% of the home loans granted during the 12 months up to last month, says Bendall. However, he said the share of the lowest price bracket (under R500 000) declined by 5% YOY.

“In contrast, the share of loans granted for homes priced at above R3 million increased by 6.6% over the past 12 months. The share of loans for homes priced at above R2.5 million increased marginally to 15.5%.

"Homebuying activity for properties valued at between R1 million and R1.5 million was ranked the second highest, with 20% of the share of loans granted. In the event of interest rates declining further, the observed shift towards a higher level of activity for relatively higher-priced houses is bound to continue,” Bendall says. 

However, on Monday, the Nedbank Economics group joined several other economic stakeholders saying they believe the MPC will leave the repo rate unchanged at this week's meeting, pausing its easing cycle, which started in September last year.

“The July meeting was a watershed moment for monetary policy in South Africa, with the MPC taking the initiative to lower its preferred inflation anchor within the existing 3-6% target range from 4.5% to 3%.

"While July's announcement took the government by surprise, National Treasury has since struck a more consolatory tone and appears willing to accept the shift to a lower target. Government's backing will bring certainty to the monetary policy framework and cement the central bank's independence.” 

In the brief, BetterBond says during July and August, the average home purchase price for all buyers managed to beat its previous record high by the smallest of margins, remaining just short of the 

R1.6 million mark. For first-time homebuyers (FTBs), it says the average price during July and August climbed to a new record high of slightly more than R1.3 million.

“The YOY increase in the average house price for all buyers was just 1.2% – well below the current inflation rate of 3%-showing that the residential property market still favours buyers.

"Since Q2 2023, when the residential property market went into a slump, the average house price for all buyers increased by 5.9% (in nominal terms), which is virtually on the nose of the change in the consumer price index over this period.” 

The bond originator says that ever since the first quarter of last year, the average deposit required for home loans has been playing yo-yo, with a series of up and down movements.

It says that, fortunately for prospective homebuyers, the net effect until the end of August has been downward. Although the third quarter to date has experienced another marginal increase in the average deposit  (for all buyers and FTBs alike), the YOY figures showed declines of 5% and 6%, respectively, it adds.

“Due to the predictable increase in bank impairments because of the record-high interest rates between 2022 and the end of 2024, banks were compelled to raise their deposit requirements for mortgaged home loans.

"The welcome reversal of this trend is bound to gather momentum if interest rates decline further.” 

BetterBond says that between 2018 and 2021, the average deposit required for home loans (all buyers) by the banking sector was 14%.

It says that due to the imposition of the South African Reserve Bank’s restrictive monetary policy, interest rates were raised to a 15-year high, which predictably led to a significant increase in the percentage of home prices that were required as deposits for loans.

By 2023, the deposit level is said to have been raised to 19.3%-representing an increase of 38% and making it more difficult for prospective homebuyers to purchase properties.

“Fortunately, the recent lowering of the prime lending rate to 10.5% has resulted in a modest decline in the deposit requirements (as a percentage of home prices), namely by 8%.” 

The brief says that a fortuitous combination of lower interest rates, higher average income levels and a marginal decline in deposit requirements by banks has exerted a positive impact on the home loan approval ratios in most regions, with Greater Pretoria leading the pack with a YOY increase of 4.7%, followed by the Free State and Northern Cape and the south-eastern suburbs of Johannesburg.

Greater Pretoria also boasted the number one position for the approval ratio, followed closely by the Western Cape. The only two provinces to have experienced declines in home loan approval ratios were Mpumalanga and the Eastern Cape.

“Hopefully, more interest rate cuts will occur during the rest of the year, which should provide a further boost for loan approval ratios.” 

In real terms (after an adjustment for inflation), average monthly incomes of FTBs have continued rising in 2025, outpacing the consumer price index by a considerable margin, says Bendall.

He says that during the past 12 months, the Eastern Cape has outperformed the other regions, posting an impressive YOY increase in average incomes of 25%, although this has occurred off a low base.

Mpumalanga is also in the medals, boasting the second-highest YOY increase and the highest average income for FTBs, namely R56 400, he adds. 

“Greater Pretoria is in second place for average monthly FTB incomes at R55 500, followed by the north-western suburbs of Johannesburg and the Western Cape. Fortunately, the economy started to create jobs again in Q2 2025, albeit marginally, which should witness further increases in average incomes.” 

Independent Media Property