What the interest rates decision means for the property market
All home owners are sighing a sigh of relief – as their monthly bond repayments remain the same. On the average house price of R757 125 over a 20 year period – it means the monthly repayment will remain at R6 934. The repayment of the average first time homebuyer’s home loan of R586 705 will also remain on R5 373 per month.
Despite a higher-than-expected rise in consumer price inflation at the end of August to 6,4% year-on-year, and the recent further decline in the rand exchange rate, Reserve Bank Governor Gill Marcus announced today that the Monetary Policy Committee has decided to leave interest rates as they are, at least until November.
Citing concerns about economic growth, which only rose 0,6% in the second quarter of this year after declining by 0,6% in the first quarter, Marcus said it had been decided to keep the repo rate at 5,75% and prime (as well as the variable home loan interest rate) at 9,25%.
"In addition," notes BetterBond CEO Shaun Rademeyer, "there will be no increase for now in car instalments, credit card repayments or other debt commitments, and this will bring some relief to consumers who are battling to cope with considerably higher food, fuel and utility costs at this time.
"We do not, however, expect the stasis in interest rates to alter the slowdown in residential property market activity that has been taking place since the 25 percentage point interest rate increases that were announced in July. And the reason is the current shortage of residential stock for sale in popular areas and lack of new development to take up the slack, which has caused house prices to rise faster than expected."
These price increases, he explains, make it more difficult for prospective buyers to qualify for home loans now, even if they are able to borrow at prime. "The average home price rose 8% in the 12 months to end-August, while the average salary or wage increase was only about 6%.
"At the same time, the higher cost of living as well as interest rate increases totalling 0,75 percentage points since the beginning of the year have eaten into the 'free' income available to cover a home loan repayment."
Consequently, Rademeyer says, the best course for prospective homebuyers now is still to try to save up bigger deposits before entering the market, as this will not only make it easier for them to qualify for a loan, but lower their monthly home loan instalments.
"In addition, they really should obtain pre-qualification for a home loan before they start looking for a property, so that they know what they can realistically afford, and be sure to apply for their loan through a reputable mortgage originator as this will give them a much better chance of securing an approval. At BetterBond, for example, we obtained approved for more than 74% of all the loan applications we submitted in the 12 months to end-August."
Source - BetterBond / Shaun Rademeyer