New homebuyers must add on extra costs
FNB, one of SA’s four largest banks, has called on consumers to better understand the real cost of home ownership, which includes bond repayments and the highest borrowing costs in more than a decade, before making the long-term financial commitment.
The SA Reserve Bank, which meets later in March, has kept interest rates steady at 8.25% since May 2023 after a cumulative increase of 475 basis points over the 10 prior meetings. Interest rates were at 3.5% in September 2021.
The increases have affected homeowners who signed loan agreements with variable rather than fixed rates.
“First-time homebuyers can steer clear of unexpected expenses by familiarising themselves with the common expenses associated with purchasing their first property,” head of product at FNB home and structured lending Angela Glover said.
Glover added that aspiring homeowners should look at the purchasing and transfer costs, bond repayments, insurance and maintenance, as well as levies, rates and taxes.
“If you want to live in an estate, there’s an additional monthly cost called levies, which are paid to a body corporate,” Glover said. “The monthly levies cover estate management, 24-hour security, controlled main gate access by visitors and residents, municipal water meter and sewage charges, backup power when there’s load-shedding or outages [and] cleaning, repairs and maintenance of all common areas of the estate.”
She said the levies usually increased annually, depending on the body corporate and AGM agreements.
Economists expect the Bank to start a rate-cutting cycle from the second half of 2024, after rates peaked in 2023.
FNB senior economist Siphamandla Mkhwanazi said the housing market had suffered. But a gradual decline in inflation and borrowing costs, combined with employment gains, was expected to prod demand in the interest-rate-sensitive segment over the medium term.
January’s consumer inflation print came in lower than market estimates of 5.5%, but at 5.3% it was up from December’s 5.1%.
Senior economist at Oxford Economics Jee-A van der Linde did not think the January reading created scope for the Bank to cut rates before the third quarter.
Mkhwanazi said projections of slightly lower interest rates, moderately better growth and continued employment gains should help support a modest lift in demand for property, and consequently property prices, from the second half of 2024.
He said FNB expected the weak house price growth trajectory to continue for a little while longer amid heightened uncertainty.
“In addition to the potential impact of the election cycle, heightened geopolitical tensions, biosecurity risks as well as adverse weather patterns complicate the deceleration trend in inflation and could prolong the lift in inflation expectations away from target,” he said. “This could cause interest rates to remain high for longer than we currently
Economics Correspondent
anticipate and extend prevailing market weakness.”
Analysts expect the sector’s sales volume to revert to the mean by 2025. In the longer term, volumes should stabilise modestly above prepandemic levels, supported by improved sentiment; employment and income gains; lower interest rates; faster population growth; innovation; and widening access to credit markets.
Glover said prospective firsttime homebuyers would benefit from taking the time to understand the expenses involved.