The housing market has remained unexpectedly resilient in the first half of 2026, but cracks are starting to appear. Latest data from mortgage originator BetterBond shows an 11% year-on-year drop in the number of home loan applications processed by the group in the third quarter. That comes on the back of two 25 basis point rate hikes in May and September, which took the prime lending rate to 10.75%, back to levels last seen two years ago.
Latest numbers from the South African Reserve Bank suggest a similar trend of prospective buyers putting decisions on hold amid ongoing uncertainty about where rates are heading next. Mortgage demand slowed notably in the three months to July, with growth in the value of new mortgages granted subsiding to less than 10%, down from a two-year peak of 18.2% in the third quarter of 2025 (see graph).
Existing and prospective homeowners are not only being squeezed by rate hikes pushing up monthly debt repayments. Banks have also raised their cash deposit requirements by nearly 22% in the third quarter.
BetterBond CEO Stephan Potgieter says banks reacted swiftly to the September rate increase, which has seen the average buyer now having to fork out a cash deposit of about R285,000. That’s up from less than R200,000 five years ago.
Independent economist John Loos says it is not inconceivable that the Reserve Bank will hike rates again later this month, given renewed oil and fuel price pressures, and the unresolved US-Iran conflict.
But even if rates are kept steady for the remainder of this year, Loos says the full impact of this year’s fuel and rate hikes could come with a lag, with more financial and debt-service pressure on households still to come in 2027.
The upshot, he predicts, is that house prices will likely cool notably in the coming months, even in the Western Cape, which until recently seemed immune to rate movements and external economic shocks.
Referring to the latest house price data from Stats SA, Loos notes that the Western Cape was still streaking ahead with average growth of 11.2% in May, well ahead of Gauteng’s 5.5% and KwaZulu-Natal’s 4.5%. In fact, he says the Western Cape, besides the Northern Cape, is the only province in South Africa that has delivered real (inflation-beating) average house price growth since 2010.
Loos ascribes the Western Cape’s housing boom largely to high investor optimism on the back of relatively good service and infrastructure delivery compared to much of the rest of the country.
“A portion of South Africa’s skilled semigrant population, along with many foreigners, find the province’s quality of life and regional government management very appealing,” he says.
The province’s economic performance has also translated into far stronger employment growth over the past decade or so compared to other major regions, all of which Loos says has helped fuel residential demand. However, the question now arises whether the province has reached the point where its relative unaffordability is starting to hamper further house price growth, which Loos argues normally tends to happen in high-performing markets at some point.
Hitting the brakes
Meanwhile, real household disposable income is bound to slow over the coming months, which in turn could lead to a deterioration in debt-service and debt-to-disposable-income ratios. Loos says the latter is a useful predictor of the direction of arrears on debt repayments, especially mortgage debt.
“Growth in new mortgage loan approvals has already slowed after May and September’s rate hikes,” he says. “The second impact is likely to be a moderate rise in mortgage arrears too.”
Chris Labuschagne, CEO of structured lending and home loans at FNB, shares the sentiment. He tells the FM that while FNB has yet to see any meaningful uptick in arrears or nonperforming home loans, credit stress tends to build gradually over time. “If and when clear signs of mortgage distress emerge will depend largely on what happens with fuel prices, inflation and interest rates over the coming months,” he says.
Labuschagne adds that while home loan demand proved resilient in the first half of 2026, with FNB growing its mortgage book 5% to R296bn in the 12 months to June, consumers have in recent months “hit the brakes” on buying homes, with a further slowdown likely into 2027.
He says: “Consumers are paying significantly more in fuel and repayments on credit cards and other debt now than in early 2026, before the US-Iran war broke out. So there’s less to spend on home loan repayments.”
Labuschagne says some would-be buyers have also been loath to commit to a property purchase amid uncertainty about how the local government elections will play out. Housing activity is being further impeded by a generally weak economy.
He says housing sales volumes are therefore being hit by a triple whammy. It’s a downward cycle Labuschagne expects will continue into 2027, given the typrical three-month lag before the full impact of higher rates can be seen in homebuying and mortgage lending numbers.
In fact, he doesn’t expect a marked upturn in housing activity any time soon. He says a strong and sustainable housing market requires GDP growth of at least 3%–4% a year. That’s a long way off the 1.2% and 1.6% GDP growth that finance minister Enoch Godongwana pencilled in for 2026 and 2027 in last month’s medium-term budget policy statement.
An uneven spread
Latest house price growth numbers from FNB already reflect the effects of higher rates and tighter household budgets. The bank’s house price index, based on sales funded through its own mortgage book, recorded average house price growth of 4.9% in August year on year, down from 6.1% in March/April and well below the multiyear peak of 7.8% recorded in mid-2021.
FNB senior economist Siphamandla Mkhwanazi says weaker house price growth reflects softening demand amid constrained stock levels. He says lower-income households are taking most of the strain, which is clear from the decline in the number of first-time buyers to 26% in August, down from 32% in May, and below levels recorded a year earlier.
Mkhwanazi says: “The most concerning aspect is continued weakness in first-time buyer participation. Given that first-time buyers are typically the most mortgage-dependent segment of the market, this deterioration reflects the ongoing affordability challenges facing households.”
He adds that household incomes are generally failing to keep pace with house prices. Still, housing activity is highly uneven across price segments. The upper end of the housing market, priced above R3.6m, has been less sensitive to rate movements than lower-priced segments, which Mkhwanazi ascribes to more financially resilient households and greater reliance on cash purchases.
Conversely, the market below R750,000 is recording the longest selling times and the largest discounts on asking price. “This reflects the tension between strong demand for affordable housing and limited purchasing power among prospective buyers.”
He says the middle-income market remains particularly vulnerable, squeezed by affordability challenges, elevated debt-servicing costs and weak income growth.
Mkhwanazi expects house prices to continue growing “modestly”, supported by limited stock, elevated construction costs and resilient demand at the upper end of the market. However, he says overall transaction volumes are likely to remain under pressure as affordability constraints continue to weigh on first-time and middle-income buyers.
It’s not all bad news, though. Latest data from mortgage originator ooba shows that housing demand is being propped up by buy-to-let investors who have yet to retreat to the sidelines. In fact, investment buying edged higher to 13.1% of all home loan applications received by the group in the third quarter, up 1.6 percentage points year on year and well ahead of historical levels of 6%–8%.
Rhys Dyer, CEO of ooba Group, says the Western Cape remains by far the country’s most investor-heavy market, with 33.7% of home loan applications in the province coming from buy-to-let or second-home buyers. The strongest quarter-on-quarter increases in investor buying, however, were recorded in Mpumalanga (3.4%), Limpopo (3.2%) and south and east Gauteng (3%).
“While investors remain a relatively small part of the overall market, the growth we’re seeing suggests that they are identifying selective opportunities even as owner-occupier buyers become more cautious,” says Dyer.
While conceding that affordability issues will likely continue to dampen home buyer enthusiasm, Dyer maintains demand has not disappeared. “It is just becoming more selective,” he says.
