Advice and Opinion

Interest rate decision encouraging for home buyers

Shaun Rademeyer, CEO of BetterLife Home Loans.
Shaun Rademeyer, CEO of BetterLife Home Loans.

The Reserve Bank’s decision last week to keep interest rates unchanged is positive for those consumers who are committed to saving in order to improve their financial future, as it means their savings will continue to grow at a relatively fast pace.

“And this includes those who are currently saving up for a deposit on a home of their own”, says Shaun Rademeyer, CEO of BetterLife Home Loans.

“The Reserve Bank decision was expected by most economists, even though the drought has subsided, inflation has begun to ease and the economy is desperately in need of a push-start such as a rate decrease, because of the US Federal Reserve decision to raise rates earlier this month and the fact that the Rand is still extremely vulnerable to political events, as demonstrated this week”.

“The Fed decision – and further rate increases expected in the US this year – will attract investors away from emerging economies like SA unless these are able to offer a higher return on their money. At the same time, Rand volatility exposes SA to the danger of imported inflation – especially when it comes to oil prices – and it is still very volatile, as illustrated by the fact that in just two days this week it lost more than half the gains it had made against the Dollar since January.”

In any case, he says, with the repo rate now set to stay at 7% for at least another two months and the prime rate at 10,5%, consumers have a further opportunity to grow their savings and protect themselves against financial hardship.

“In times of very low growth and high unemployment, it is even more important for consumers to try to build financial reserves, and the decision will be popular among the many South Africans who have been trying to do just that for the past few years by paying off as much debt as possible and diverting any spare cash to savings”.

“What is more, it is likely to give people more confidence in the economy and boost domestic savings and investment, which will in turn encourage more of the foreign investment that is key to greater economic growth.”  

Rademeyer says the current stable rates are especially positive for those who are trying to accumulate a sizeable deposit so that they can qualify for a home loan and buy their first home.

“The bigger the deposit, the easier it is for them to qualify, because the loan amount needed will be smaller and they will need less discretionary income to cover the monthly bond repayment. In addition, a large deposit may help them qualify for a preferential home loan interest rate that would make the installments even more affordable”.

“Consequently, we expect the Reserve Bank decision this week to fuel the increase in the number of first-time buyers we have seen entering the market since the start of the year. These buyers are well aware of rising property prices and are aiming to become homeowners as soon as possible.”