Stable rates good news for homeowners
A chance to pay more into bonds
THE MONETARY Policy Committee’s decision to leave interest rates unchanged will see more homes sold, more homeowners able to keep up with their bond repayments, and improve chances of home loans being granted.
The stable rates will allow some owners to pay a little extra into their bonds, or create emergency funds, property players believe.
Last week’s announcement to keep the prime lending rate at 10.25% and the repo rate at 6.75% was welcomed by most in the industry, who believe it offers a stable start to the year after political and economic volatility last year.
Bond originator Betterbond says the positive sentiment in South Africa’s property market is bound to be strengthened by the decision.
Chief executive Rudi Botha says more homes are likely to be sold as a result. Already there has been a resurgence of buyer demand and an increase in the number of home loan applications Betterbond is receiving each week.
“It means that first-time buyers still have an opportunity to qualify for a home loan at their current salary, and at a relatively low interest rate that will make their home loan instalments more affordable – especially if they have saved up a sizeable deposit.
“They will also be able to take advantage of the current buyers’ market in which there is a wide choice of homes to buy and prices are more negotiable. It will be easier for property investors to build up their portfolios of rental properties, and for existing homeowners to upgrade to bigger properties.”
Stable rates will also make it easier for owners to keep up with their home loan repayments, Botha says.
Echoing this, Adrian Goslett, regional director and chief executive of RE/MAX, advises owners to place themselves in the “best possible financial situation” to mitigate any economic changes in the future.
“A steady low-interest rate gives consumers the opportunity to create an emergency fund to see them through any financially challenging times they could face. It is also an opportunity to reduce their level of debt.”
Goslett adds that periods of interest rate stability provide homeowners with opportunities to budget and pay extra into their bond accounts to reduce the amount of interest paid, as well as reduce the term of the loan.
“If a homeowner has a bond of R1 million at the prime interest rate of 10.25% over 20 years, and they pay an additional R500 into the bond every month, t hey will reduce the term of the loan by almost three years, and save R221 106 in interest.”
Although the current political transition is unlikely to create an environment for interest rate cuts, it is helping to ease pressure on the bank to hike rates, says Pam Golding Properties chief executive Andrew Golding
“Given the national Budget pending in February and potential further risk to our country’s credit rating, this outcome was not surprising, although it is hoped that lower inflation and a less volatile political environment will facilitate a move towards a rate cut in the near future.
“With the economy expected to strengthen somewhat and interest rate hikes most likely delayed, the outlook for the local housing market is more upbeat this year. Just how much better will become apparent in the weeks and months ahead.”
One person unhappy with the decision to leave the rates unchanged is Seeff Property Group chairman Samuel Seeff, who felt the time was right for a rate cut to stimulate the economy and property market. The fact that it was not, was therefore “very disappointing”.
Despite this, Seeff believes there will always be activity in the market as people need to buy and sell for various reasons. The first few months of the year are usually more active and so he urges those looking to sell or buy to “go ahead and do so”.
“There is no need to wait, business continues… As the market stands right now, conditions are favourable for buyers and it is a good time to buy,” he says.
Young people should buy property as early as possible, instead of forking out money on rent.