Revolutionising Home Financing in South Africa:
How collaboration across the value-chain empowers consumer choice
A journey of progress
Building inclusion and transparency in Home Financing
Rhys Dyer
CEO of ooba
As we reflect on the 30 years since the dawn of democracy in South Africa, one of the most notable stories of transformation lies in the evolution of home financing. The journey from a rigidly regulated, non-inclusive financial industry to a dynamic, consumer-centric market has not only mirrored the country's broader societal shifts but has also set the stage for what the future of homeownership could look like.
Three decades ago, securing a home loan was only available to a small group of South Africa's population. Banks worked through their own distribution networks that primarily relied on branch and private banking networks, along with estate agents to market their home loan products. This system left consumers with limited options and long waiting times characterised by manual interventions and minimal transparency. There was a need for the entire financial system to move to a more transparent and efficient approach, to create more inclusion and participation. Much has been done by regulators and the industry itself to drastically improve the landscape over the past 30 years.
Empowering consumers through mortgage origination
When South Africa transitioned from apartheid to democracy in 1994, this brought about a significant shift in socioeconomic policies. These included the Financial Sector Charter, enacted in 2003, which required banks to provide access to financial services, particularly home loans, to all South Africans. This charter was critical in fostering financial inclusion and democratising access to home loans.
The introduction of mortgage originators approximately 25 years ago contributed to fundamentally altering this landscape. Rhys Dyer, CEO of ooba, one of South Africa's leading mortgage originators, succinctly describes the impact: “The advent of mortgage origination has had a significant impact on the distribution of home loans in South Africa.” By enabling consumers to access multiple banks through a single application, originators introduced a new era of competition, transparency, and choice, he says.
This shift did more than just streamline the process; it redefined the power dynamics within the industry. For the first time, consumers had an equal voice. They now had options for the best home finance deal to suit their specific needs. The ripple effects were profound. Banks, now in direct competition for customers, are more motivated to innovate both in terms of pricing and service delivery. “The ability to access multiple banks through one originator has significantly increased choice and transparency for the consumer and introduced a higher level of competition between lenders for home loan business,” notes Dyer.
Legislation and technology: shaping a new landscape
The legislative environment evolved in tandem with these market changes. The National Credit Act (NCA), which introduced stricter affordability assessments and curbed reckless lending practices, was a watershed moment for consumer protection. It established clear guidelines for what was acceptable in the lending process, bringing about a more responsible and sustainable approach to home financing.
The transformation was not only regulatory. Technological advancements over the past 30 years have been a game-changer. From the introduction of digital credit scorecards to the replacement of fax machines with seamless online systems, the industry has embraced technology to enhance efficiency and improve the consumer experience in accessing home finance solutions. Dyer highlights the significance of these advancements: “Credit scorecards have become a digital process with far less human intervention, improving turnaround times and consistency of the credit outcome for banks.”
Pre-qualification processes introduced by banks, another major innovation, have further empowered consumers by providing clarity on affordability early in the home-buying journey. These tools have made it easier for consumers to navigate the complex world of home financing, armed with the knowledge they need to make informed decisions.
The growth of homeownership and market expansion
The scale of home financing has expanded dramatically over the past 30 years, reflecting both the growth of the South African economy and the increasing accessibility of credit. According to the Reserve Bank of South Africa, the total value of residential mortgage loans has grown from approximately R70 billion in the mid-1990s to over R1.2 trillion by 2024. This exponential growth highlights the critical role that mortgage financing has played in enabling homeownership for millions of South Africans.
Data from Lightstone’s September 2024 Property Newsletter reveals that the average value of residential properties has more than tripled over the past three decades, particularly in urban areas. This rise in property values has been accompanied by a surge in home finance applications, as more South Africans seek to invest in real estate as a means of building wealth.
Data from Statistics South Africa paints a similar picture of growth. The number of registered residential properties has more than doubled since the early 1990s, with a significant increase in both urban and rural areas. This expansion in property ownership has been facilitated by the growing availability of home financing, which has made it possible for more South Africans to realise the dream of owning a home.
Looking ahead: the future of home financing in South Africa
The role of banks, estate agents, and developers has remained crucial throughout these changes. While the channels through which consumers access home loans have evolved, the importance of the relationship between mortgage originators and estate agencies has only deepened. “The real estate/developer channel remains the most important point of access for home loan originators and banks to new home-buying customers and new home-buyers to originators and banks,” says Dyer. This symbiotic relationship continues to thrive, with each party relying on the other to deliver value to the consumer.
Consumer preferences have also shifted over the decades. While freehold properties still dominate the market, there has been a noticeable increase in the popularity of sectional title properties, particularly among first-time buyers and those seeking secure, low-maintenance living arrangements. This trend reflects broader demographic changes and evolving lifestyle preferences.
As we look to the future, the question is not just about how the industry will continue to evolve, but how it can anticipate and address the needs of the next generation of homebuyers. Dyer believes that there is still work to be done, particularly in educating first-time homebuyers and improving access to affordable housing. “There is still more we can do to prepare first-time homebuyers for the journey and to hold their hand through the daunting process of homeownership,” he says.
The future of home financing in South Africa will undoubtedly be shaped by further technological advancements and a continued focus on consumer empowerment. The collaborations between banks, mortgage originators, estate agents, and technological innovations will remain central to driving progress. Indeed, Dyer emphasises the need for continued collaboration and innovation, stating: “ooba has been at the forefront of working with banks to improve efficiencies in the industry and to drive regulation and standards across the industry.”
In conclusion, the evolution of home financing in South Africa over the past 30 years is a testament to the power of partnership, innovation, competition, and consumer empowerment. As we navigate the challenges and opportunities of the future, the lessons of the past three decades will serve as a guiding light, ensuring that the dream of homeownership remains within reach for all South Africans.