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Real estate industry comments on unchanged repo rate

Despite some economists suggesting that we might see an interest rate cut for the first time in four years, the Reserve Bank has decided to keep interest rates at their current levels with the repo rate steady at 7%, and the prime lending rate is staying at 10.5%.

“While a rate cut would have brought about some financial relief to consumers, the fact that the rate has remained steady for a year now should have helped many to sort out their financial affairs to some degree,” says Adrian Goslett, Regional Director and CEO of RE/MAX of Southern Africa. “The Reserve Bank is currently at the end of its hiking cycle. However, this does not mean that consumers should see this as an opportunity to incur further debt, but rather an opportunity to reduce debt and put money aside,” he advises.

According to Goslett, debt is financially crippling so many prospective buyers who want to get into the property market. “Too much money is spent by consumers servicing debt. Debt is a vicious cycle.  If consumers incur debt, banks incur more debt, which means the Reserve Bank has more debt, and the country has more debt. Essentially, this means that the country has less money to take care of its people and the poorer everyone gets, which results in people needing to borrow and start the cycle again. Reducing or eradicating debt will increase disposable income and improve consumer’s financial situations,” says Goslett.

He adds that for consumers who are already homeowners, proper planning when interest rates are steady or low will assist them to survive financially during hiking cycles. “Where possible homeowners should pay more than their minimum bond repayment to reduce the outstanding balance faster and save on the interest paid over the term of the loan. If the interest rates are hiked in the future, the homeowner would have benefited from their decision to pay more, and they would not feel the impact of the increase as much as those who have paid the minimum monthly instalment,” advises Goslett. 

“We welcome today’s decision by the Reserve Bank’s Monetary Policy Committee to maintain the repo rate at 7% as it provides some relief to consumers dealing with rising food inflation and taxes”, says Bruce Swain, CEO of Leapfrog Property Group, “That being said, interest rates rise and fall and ultimately I would advise home owners not to worry about it too much. We may be at the end of the recent rising cycle, we might not – rather focus on paying a little extra into your home loan every month and you’ll always have a buffer against any rates increases”.
 
Swain explains that if a buyer purchases a property for R1.2 million, with a deposit of 20%, with a repayment at 11% over twenty years, it will cost the buyer R9,819 per month (excluding interest and municipal rate fluctuations). However, if the buyer increases their repayment by R500 per month the term reduces by 3 years, with a saving in interest of R251,484. Increasing the repayments by one thousand rand per month, reduces the term by 5 years, saving the buyer R409,140 in interest.
 
“Paying in as little as R500 a month extra into your home loan significantly reduces the interest payable over the duration of the loan – making it interest rate proof in a way”, says Swain.



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