Stable Interest Rates Allow Property Market to Remain Active
Following a streak of interest rates cuts, the Monetary Policy Committee (MPC) has announced no further relief for South African debt holders today by keeping the repo rate at 3.5%, leaving the prime lending rate at 7%.
According to Regional Director and CEO of RE/MAX of Southern Africa, Adrian Goslett, the MPC acted prudently by cutting interest rates at previous meetings. “As things stand, their previous cuts have already generated increased appetite in the first-time buyers’ market and has also increased activity within the property market in general. Keeping interest rates stable following these cuts will allow market activity to continue as it has been which will hopefully lead to further market recovery,” Goslett explains.
For those who can afford to do so, Goslett encourages buyers to enter the property market while interest rates are still low. “The way home loan repayments are structured, for the first five to ten years of the loan, bondholders are paying off more in interest charges than on the capital amount. Purchasing a home now means that buyers will benefit from the historically low-interest rates during the interest-heavy portion of their home loan. This will result in substantial savings for these bondholders,” Goslett explains.
To provide an example of how much bondholders stand to save based on the earlier interest rate cuts, stats from South Africa’s leading bond originator, BetterBond, show that the interest savings over 20 years from 9,75% (the interest rate earlier this year) to 7% amounts to R623,585 on a R1.5 million home loan.
“At the current interest rate, bond repayments can be more affordable than the monthly rent. I would just caution new buyers to leave room in their budget so that they can still afford the repayments if interest rates later return to their previous levels of around 10%,” Goslett concludes.