It is now quite clear, says John Smyth, CEO of Multi Net Mortgages, the third largest South African bond originator operating on bank direct origination contracts, that, having kicked off with a small 0,25% interest rate rise in the prime rate last month (November), thereby raising the prime bank rate to 9,75% per annum, the South African Reserve Bank will increase its rate further during the course of 2016 and 2017.
It is now also clear, says Smyth, that the South African Reserve Bank has made it a priority to curb inflation which they predict will rise to 6% in 2016.
“By acting as they have now,” he says, “they are softening the impact of interest rate rises which will inevitably follow on from the rises which the US Federal Bank will implement in the very near future.”
In the circumstances what advice can bond originators such as Multi Net Mortgages give to potential bond applicants?
“My advice,” says Smyth, “is to get in as soon possible before further rises take place. Start budgeting accurately, consult a good bond originator all along the line and, once your ducks are in a row, apply for a bond before further rises in the interest rate take place.”
Smyth says that although it is true that the average middle class South African has in the last 24 months seen his net disposable income reduced very markedly by the rising cost of living, it has also to be accepted that South African interest rates are still very close to the lows of 2013 and should, therefore, be within reach of any middle class salary earner who budgets carefully.
“All our experience goes to show,” he says, “that there are hundreds – perhaps thousands – of South Africans out there who long to become home owners but who are deterred from buying simply because they do not understand the process and the criteria which the banks apply to bond awards. As I have said elsewhere, an education programme is vitally necessary, but consulting with a reputable originator can make all the difference.”