Unchanged rate signals tougher times for home buyers

Although widely expected, the Reserve Bank’s decision last week to leave the repo rate unchanged at 5% was still disappointing, given the slowing pace of already sluggish economic growth and falling consumer confidence.
So says Shaun Rademeyer, CEO of BetterBond home loans, SA’s biggest mortgage originator, who notes that there were many, especially in the real estate industry, who hoped that Reserve Bank Governor Gill Marcus might see her way clear to making a rate cut, “even if it was a drop of only 25 or 50 basis points, to give the economy and the property market a psychological boost before the holiday season”.
The Governor said, however, that although a rate cut had been considered, the upside risk for inflation was still too high because of the risk that the rand exchange rate would worsen.
On the other hand, the Monetary Policy Committee had decided that a repo rate increase to keep inflation in check would not be appropriate either, given the extremely slow rate of GDP growth (revised from an expected 2,1% for 2013 down to 1,9%) and low levels of both business and consumer confidence.

The downward trend of household consumption expenditure – that is, weak demand in the economy – would help to counter inflation, and slower bank credit extension to households was likely to reinforce this trend, she said

Indeed, notes Rademeyer, inflation is expected to remain below the 6% upper target for the rest of this year and next, and economists are predicting that there will actually be no further interest rate movements now until 2015.
“However, this stability is likely to come at a cost to prospective homebuyers. Between trying to reduce their debts and trying to cope with ever-higher transport, food, medical, education and electricity costs, they are not likely to have much disposable income left over in the coming year to either save for a deposit or afford a bond repayment.”
Certainly, he says, the current low interest rates, which have remained the same since July 2012, have not resulted in any significant decline in the household debt to disposable income ratio (now at around 74%) or improvement in the household savings ratio.

“First-time buyers may thus have to defer their home buying plans, which will take a lot of the impetus out of the market – and out of the economy as a whole because of the ripple effect that home buying and building has on many other sectors.”
As for existing homeowners, Rademeyer says, they will also be getting no relief on their monthly bond repayments now, “but they have been given another opportunity to pay any extra income, such as a 13th cheque, into their home loan account and build up a buffer against future interest rate increases.”

  Comment on this Article

  Please login to post comments

Post to my facebook wall
Characters remaining

    Latest Property News
    • 17 Nov 2017
      FWJK has announced the launch of its latest residential brand, the Lil’ Apple, which will be launched simultaneously in two developments in Cape Town and Umhlanga totaling 600 apartments. The Lil’ Apple is set to be a brand of FWJK’s New York style apartments which will be rolled out nationally.
    • 17 Nov 2017
      It’s been a tumultuous year on many fronts, with socio-political uncertainty setting the tone for much of South Africa’s economic activity yet despite this and seemingly counter-intuitively, the residential property market has held up well.
    • 17 Nov 2017
      The EAAB (the Estate Agency Affairs Board) recently claimed that around 50,000 illegal estate agents could currently be operating illegally.
    • 16 Nov 2017
      Penthouses are synonymous with New York – characterised by high-rise living that is decidedly luxurious and spacious. While exclusivity comes at a price, you can still create a “penthouse” look and feel in your existing apartment or even the upstairs bedroom of a double storey house with some clever design changes and styling touches.
    • 16 Nov 2017
      The area has long been popular with kite surfers and, with escalating property prices in Cape Town itself, is increasingly in demand with home owners who work in town, but are looking to invest in more affordable properties.
    • 16 Nov 2017
      Cape Town’s popularity as a world-class tourist destination has resulted in a spike in the number of homes available for holiday lets and fuelled investor demand for sectional title units with short term rental potential.
    • 15 Nov 2017
      Sappi, one of South Africa’s oldest global companies and a leading global supplier of sustainable woodfibre products, has moved its global and regional headquarters to a new site on the corner of Oxford and 14th Avenue in Rosebank.
    • 15 Nov 2017
      There’s an old saying in real estate that you should seek to make a profit when you buy, not only when you sell – and a large part of succeeding at that endeavour is buying a home in an area with desirable features that will enhance the resale value of your property.
    Subscribe to the MyProperty Newsletter

    Last Name  
    Email Address  
    Email Frequency
    Share this Page

    For Sale Property
    Rental Property
    More Options
    Connect with us