Don’t wait for rates to drop – buy property now and get a double benefit

On the advice of the Monetary Policy Committee (MPC), the Reserve Bank decided recently to leave interest rates unchanged, despite the fact that the annual inflation rate is now well-within the 3% to 6% target range, at a year-on-year rate of 4.8% in August.

This decision means that the repo rate will remain at 6.75% and the prime rate and standard home loan rates at 10.25% for at least another two months, and it is disappointing to those who believed there was room – and a need – for a further rate decrease after the 25 basis point drop in July to give consumer confidence and the economy a much-needed boost.

So says Shaun Rademeyer, chief executive of mortgage originator BetterBond, who notes that there were many, especially in the property industry, who were really hoping that Reserve Bank Governor Lesetja Kganyago would see his way clear to making another rate cut – even if it was only a drop of 25 basis points – in the light of the urgent need to stimulate the economy and keep it out of recession.

“Earlier this month, the World Bank revised its growth forecast for SA to 0.6% in the 2017/ 2018 financial year, and our unemployment figures continue to rise as a result of low investor confidence and low rates of business creation following the rating agency downgrades of our sovereign investment grades at the start of the year.”

Fortunately, he notes, the Federal Reserve has also decided to keep US interest rates unchanged for now, and this should help to stabilise and possibly strengthen the rand, although inflation could still start to rise again following increased global oil prices.

“Indeed, the decision to keep SA rates stable may well have been influenced by the need to ensure that SA remains a competitive investment destination in terms of the returns that investors can expect to earn. Lower interest rates always create the risk of capital outflows, especially in developing economies, and SA really cannot afford to take that chance at the moment.

“As it is, SA has recently lost some ground as Africa’s top investment destination. The latest RMB Invest in Africa report places it second for the first time in many years, with Egypt now in the top spot, and earlier this year the Africa Investment Index released by Quantum Global ranked SA only fourth, behind Botswana, Morocco and Egypt.”

In addition, says Rademeyer, while the household debt-to-income ratio is currently at its lowest level in more than 10 years at 72.6%, the latest statistics are showing an upturn in consumer credit extension, and possibly the Reserve Bank is waiting to see how this develops before deciding to drop rates any further.

“A worrying fact is that unsecured borrowing (including personal and payday loans) now makes up almost a quarter of private sector credit extension and is growing at more than twice the rate of secured borrowing such as home loans.

“Meanwhile, we don’t believe that prospective home buyers should wait for another rate cut now to finalise their purchase plans. Home prices are rising very slowly at the moment but always start increasing as soon as rates start dropping, so the best move would be to buy now and secure your home at the best possible price.

“This will give you a double benefit when rates do start to drop because you will have a lower monthly home loan repayment to make, and a lower home loan balance to pay off.”

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