select
|

Rate hike a comma, not a full stop

The Reserve Bank’s decision to raise interest rates by 50 basis points this week will undoubtedly put something of a damper on the property market recovery that is currently underway.
 
However, says Shaun Rademeyer, CEO of BetterBondHome Loans, SA’s biggest mortgage originator, this is not expected to be severe, or lasting, unless more hikes follow in short succession.
 
“The current increase in the repo rate from 5% to 5,5% will only take the banks’ prime lending rate - and the mortgage rate –from 8,5% to 9%, which is exactly where we were before the last post-recession rate decrease, in July 2012.And there has been huge increase in the demand for property since then, even though consumers have had to contend with steep fuel and electricity price hikes and other significant cost-of-living increases.”
 
There are many reasons for this, he says, including a growing population, relatively low growth in low home prices and the banks’ increased appetite for long-term rather than unsecured lending.“But the major one is that many consumers have worked very hard since 2009 to clean up their credit records, reduce their debt loads, and not take on any new credit.
 
“This is clearly evident in the latest statistics, which show that the rate of new household credit creation has been dropping since November 2012, when it reached 10,4%, and was just 5,5% in December, compared to 5,9% a month before.”
 
“What is more, the rate of credit growth in the household sector is expected to remain below the rate of growth in disposable income, which is currently at 7%, for the foreseeable future. In short, consumers are in much better financial shape now, and actually much more able to deal with moderate rate increases, than they were at the start of the recession five years ago.”
 
Turning to specifics, Rademeyersays the rate increase means that a homeowner with an existing 20-year bond of R900 000 taken at 8,5%, for example, will see the minimum monthly repayment rise by almost R300, from R7810 to R8098.
 
“But it must also be said that a mortgage rate of 9% is still extremely low by SA standards – and that bonds granted at prime rate have in any case been a very rare occurrence for the past five years, with most being granted at one or two percentage points above prime. Our advice to those who have established a good payment record, and whose financial position has improved since their bond was granted would thus be to approach their lender now and see if they can negotiate a reduction in this differential.
 
“Alternatively, if they are worried about further rate increases, they may want to consider fixing their interest rate for the next few years. The banks usually charge a premium for this, but some consumers consider this a small price to pay for certainty when it comes to budgeting.”
 
Meanwhile, he says, first-time buyers should not be put off entering the market by the rates increase, but rather prompted to move quickly while it is still relatively easy to qualify for home loans – and before a steadily growing shortage of rental properties pushes rentals up even further.
 
“BetterBond statistics show that the average home loan currently required by first-time buyers is around R630 000, which at an interest rate of 8,5% meant a household income of around R18 000 a month was required to qualify. At an interest rate of 9%, that qualification level rises by just R1000 to R19 000 a month – while the monthly repayment rises from R5467 to R5668.
 
“However these figures are only indicative and prospective buyers should first consult a reputable mortgage originator who will be able to advise them as to affordability and the best home loan options currently available to them.”


  Comment on this Article

  Please login to post comments

Post to my facebook wall
  
2000
Characters remaining


    Latest Property News
    • 23 Nov 2017
      Reserve Bank Governor, Lesetja Kganyago, said that the Monetary Policy Committee had once again decided to let the interest rates remain unchanged with the repo rate at 6.75%, and the prime lending rate at 10.25%.
    • 23 Nov 2017
      As the holiday season approaches, most of us are counting the days until that year-end bonus hits our account. There’s nothing quite like a little bank balance booster to get us in the holiday spirit.
    • 23 Nov 2017
      The Adelphi Centre (now entitled “ARTEM") in Sea Point, Cape Town, is being extensively renovated, and once complete will offer an ultra-luxurious galleria style shopping centre unlike any other seen on the Atlantic Seaboard or in Cape Town.
    • 23 Nov 2017
      If you are looking to sell your home in today’s real estate market, there are certain things that you need to include both inside and outside your house. Today’s generation of home buyers is looking toward a more eco-friendly, energy and water conscious home, and if your house stands out then you are more likely to be able to sell it.
    • 22 Nov 2017
      Most people know of the Community Schemes Ombud Service (CSOS) and that levies must to paid to fund its operations. In this article the experts at Paddocks will address some of the issues that are causing confusion.
    • 22 Nov 2017
      While sales have noticeably slowed in most sectors in most Cape town suburbs, the security estate sector in Constantiaberg has bucked the trend by remaining buoyant, with sales by August this year already surpassing total sales in 2016.
    • 22 Nov 2017
      The end of the year is fast approaching, and so are all the travellers, tourists and holidaymakers. For those who live near or own a property in a holiday-hotspot, the festive season also brings with it an abundance of short-term rental opportunities. Its a great way for property owners to make a few extra rand for their own holidays or to put towards their savings.
    • 21 Nov 2017
      The buying process is over, and the moving truck has delivered your household goods to your new property. Now it’s time to unpack and turn your new house into a home.
        
    X
    Subscribe to the MyProperty Newsletter

    Name  
    Last Name  
    Email Address  
    Email Frequency
    select
    X
    Share this Page

       
    For Sale Property
    Rental Property
    More Options
    About
    Connect with us
    FEEDBACK