Last week’s Reserve Bank decision to leave the repo rate unchanged at 7% and the prime rate and variable home loan rate at 10,5% is good news for both home owners and home buyers.
This is according to Shaun Rademeyer, CEO of BetterLife Home Loans, who says that “It means that the monthly repayment on a home loan of R800 000 obtained at an interest rate of 10,5% will remain at just under R8000 – and that will give existing home owners some comfort.”
However he adds: “Economists say the most pressing issue for the MPC at the moment is low economic growth and the real danger that SA could tip into recession before the end of the year – note the fact that inflation is running at slightly above the MPC’s 6% ceiling.”
He continues: “With growth now projected to hit 0% in 2016, unemployment on the rise and a ratings downgrade quite possible at the end of the year, an interest rate increase to try to reduce inflation by curbing consumer spending at this stage would not have been wise.”
What is more, he says, most South African households are not actually spending excessively. Rather, they are struggling to make ends meet as a result of the high food prices induced by the drought, electricity and other tariff increases this year, and higher debt repayments as a result of the two interest rate increases imposed earlier this year.
As a result, this week’s decision is good news for both home owners and home buyers whose bonds will stay the same giving existing home owners some comfort.
“It also means that there will be no increase for now in car installments, credit and store card repayments or other debt commitments, which will give prospective buyers a little more time to qualify for a home loan at their current income levels,” he says.
“And even tenants will benefit because their landlords will now not need to increase rentals to cover their own higher bond repayments.”
However, Rademeyer cautions, the banks can be expected to continue to follow very strict credit granting criteria, so prospective buyers should be sure to apply for their loans through a reputable mortgage originator like BetterLife Home Loans, which is prepared to motivate and caretake individual applications, and can advise them as to the most suitable home loan options for their individual financial circumstances.
“The advantage in following this course is very clear from the fact that we are currently able to obtain approval for three out of every four home loan applications we submit, as opposed to a success rate of less than 40% in the open market,” he concludes.