FNB House Price Index (HPI) shows Recovery, boosted by Buy-to-Let

• The FNB House Price Index rose to 1.2% y/y in January, reflecting a gradual recovery in the housing market
• The average loan-to-value ratio increased to 95.1%, signalling improving lending conditions and cautious optimism from lenders.
• Buy-to-let purchases grew to 12% of market activity, with the Affordable segment driving investor interest and strong rental yields.

Market overview and current trends

The latest FNB House Price Index (HPI) accelerated to 1.2% y/y in January, from 1.1% in December (revised from 0.9%). While still subdued, this marks the highest growth rate since June 2023, reflecting a gradual market recovery.

Shifting consumer behaviour and mortgage lending trends

• The average loan-to-value (LTV) ratio has increased to 95.1% in 4Q24, indicating a modest improvement in lending conditions and cautious optimism among lenders. This reflects a gradual loosening of lending standards in response to an improving economic backdrop.

The 4Q24 FNB Estate Agents Survey highlighted notable shifts in first-time buyer behaviour:

• There's a noticeable reduction in reliance on unsecured credit for deposits, with more first-time buyers utilising personal savings. This is attributed to improving household finances and the early impact of the "two-pot" retirement system.
• First-time buyer participation has risen to 25% of total market activity, with a significant 39% share in the Affordable segment. However, participation remains below 2022 levels, suggesting ongoing affordability constraints.

Growing interest in Buy-to-Let investments

• Buy-to-let purchases have increased to 12% of market activity, with the Affordable segment driving much of this growth (30% of purchases). This indicates strong investor confidence and a search for alternative investment opportunities in a stabilising property market, with expected strong rental yields.

Outlook

The rising presence of both first-time buyers and buy-to-let investors in lower-priced segments underscores strong affordability-driven demand and improving confidence in property as an investment.

• If wage growth continues to outpace inflation (as indicated by the BankservAfrica Take-home Pay Index) and interest rates decline further, housing demand for both ownership and rental should strengthen.
• The FNB HPI is projected to climb towards 1.7% in 2025, and accelerate to exceed 3% by 2026, as market fundamentals continue to improve.

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