Rate cut gives vital savings to property buyers and bond holders

Today’s decision by the Reserve Bank to cut the repo rate by a further 50 basis points to 3.75%, reducing the home loan rate to 7.25% provides further vital savings to property buyers and bond holders, says Samuel Seeff, chairman of the Seeff Property Group.

These are unprecedented and uncertain times and we need as much support from the Reserve Bank as possible to boost confidence to invest in the property market and economy as we emerge from the Lockdown. Especially, says Seeff, as inflation is expected to remain well within the 3%-6% target range.

This is the fourth interest rate cut this year. Aside from the financial relief for households, it has created an unprecedented opportunity for buyers to take advantage of the near five-decade low borrowing costs and drastically improved affordability.

The rate cuts this year has already provided considerable savings of over R1 400 per month on a R1 million home loan (over twenty years) and this cut now adds a further R300-plus saving.

Affordability has improved drastically. If you had purchased a R1 million property at 10%, your gross monthly income requirement was at around R33 000 per month. It has now reduced by over R5 000, a significant benefit for buyers to take advantage of the interest savings and transfer duty exemption.

“Dropping interest rates allows struggling homeowners the opportunity to keep up with the instalments on their home loan. This means that fewer homes will be forced onto the market which lowers the possibly for a housing market crash where supply far outweighs demand and property values plummet,” explains Adrian Goslett, CEO of RE/MAX Southern Africa.

According to South Africa’s leading bond originator, BetterBond, at a 0.5% drop, homeowners will save the following on their home loan:

Bond Amount 

Prime rate down by 0,5% to 7,25% 

Interest Savings over 20 years

Monthly Savings

R      250 000,00 

R18 343

R76

R      500 000,00 

R36 687

R153

R      750 000,00 

R55 030

R229

R   1 000 000,00 

R73 375

R305

R   1 250 000,00 

R91 718

R382

R   1 500 000,00 

R110 061

R458

R   2 000 000,00 

R146 748

R611

R   3 000 000,00 

R220 123

R917

R   4 000 000,00 

R293 497

R1 223

R   5 000 000,00 

R366 871

R1 528

R   6 000 000,00 

R440 245

R1 834

Seeff says that it is especially favourable for the low to mid-market range to R1.5 million (up to R3 million in some areas) where we have seen the bulk of activity. Buyers who are financially able to buy now have more property to choose from as stock levels are higher than what they have been for some time.

“The time to buy is clearly now, as the lower price band (below R1 million) continues to see house price inflation escalate, with the latest Pam Golding Residential Property index showing house prices in this price band rising by 6.9% in April (2020). Notable among the metro markets, and according to the latest data from Lightstone, Cape Town house price inflation (4.2% in January 2020) continues to rebound, followed by Nelson Mandela Bay (3.5%) and eThekwini (3.2%) holding steady. Compared with a national average of 2.6%, this is indicative of the fact that housing markets in the coastal metros continue to outperform, but obviously these results reflect a pre-COVID world and it remains to be seen what kind of market there will be post lockdown," says Dr Andrew Golding, CE of Pam Golding Property Group.

After an exhaustive wait, sellers are beginning to negotiate and consider lower offers. While we do not know what the lending climate will look like post-Lockdown, lending conditions remain favourable for the time being.

Seeff says that there is interest from buyers. Our agents have made many successful sales under Lockdown with many more pending physical viewings but the longer the Lockdown lasts, the more the challenges are piling up for the economy and property market.

While many support structures of the market such as the deeds offices, conveyancers and the banks are becoming operational, buyers are extremely frustrated with the Level 4 restrictions. They cannot comprehend the logic of not being able to view a property and so that they can move forward with their property transactions.

“The rate cut is some good news for the residential property market and the real estate industry, which is under considerable pressure at present. While we have seen a very positive response to our iShow technology - which enables us to showcase properties for sale online via video viewings and virtual show days using Facebook Watch Party functionality - buyers remain hesitant to commit on the basis of ‘sight unseen’. Once real estate is allowed to operate at full strength, which we hope will be in the near future, we will be able to ascertain the net effect of the recent extensive reduction in interest rates thus far this year," adds Golding.

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