Property buyers, owners need to make the most of low rates

In the face of higher inflation and rising home prices, the Reserve Bank’s decision this week to leave the repo rate unchanged at 5% is good news for both homebuyers and existing homeowners.
“With the variable mortgage interest rate also remaining the same, at 8,5%, monthly home loan repayments are currently almost 36% lower than they were in December 2008, when the recession hit and the Bank began cutting rates,” notes Shaun Rademeyer, CEO of BetterBond Home Loans, SA’s biggest mortgage originator group.
“And this is most important for prospective homebuyers, because it makes it a great deal easier for them to qualify for home loans, and to afford the monthly repayments.”
In December 2008, when the variable mortgage rate stood at 15,5%, buyers required a household income of just under R48 000 to qualify for a R1m bond. Today, with the rate at 8,5%, the income required is only about R28 000 – which obviously brings home ownership within reach for many more consumers, even though additional credit criteria are now applied in terms of the National Credit Act, he says.
“Meanwhile, the minimum monthly repayment on a R1m loan has dropped from R14 340 to R8 364. This has also brought great relief to existing homeowners who have had to deal with huge increases in the cost of transport, utilities, food, healthcare and education over the past few years.”
However, Rademeyer says, neither homebuyers nor homeowners should be complacent. “Although the Reserve Bank expects the inflation rate to drop back to below 6% before the end of the year, economists expect that it will have to start raising interest rates again from about the middle of next year.
“And a change of just one percentage point can make a major difference to the affordability of housing. Consequently, we suggest that those with plans to buy should do so as soon as possible, and with as big a deposit as possible. This will not only improve their chances of obtaining a home loan but will also lower their monthly repayments and enable them to cope more easily if and when rates do start to rise.”
As for existing homeowners, he says, they should be taking the opportunity now while rates remain at these historic lows to pay an additional amount into their bond account every month and reduce the capital portion of the loan. “This will not only put them in a better position to deal with future interest rate increases, but also enable them to pay their whole loan off much more quickly and save many thousands of rands in interest.”

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