Buy now or be sorry

THE real estate industry generally reacted positively when Reserve Bank governor Gill Marcus announced after this week’s meeting of the Monetary Policy Committee (MPC) that there would be no change in the repo rate or other interest rates.

There had been concerns following a 0,5 percentage point repo rate increase in January that every meeting of the MPC this year would bring a further increase, albeit slight, as the committee struggled to keep inflation below its 6% target.

“However, it seems that at this meeting the MPC gave more weight to the risks inherent in slowing economic growth and declining business confidence than to those from the rising food and transport costs that are currently the main inflation culprits,” says Shaun Rademeyer, CEO of SA’s leading mortgage originator BetterBond.

“It consequently decided to leave the repo rate at 5,5% and the prime rate at 9%, giving consumers a breathing space to prepare for the interest rate increases that are definitely on the cards over the next 12 months.”

The effect of this for existing homeowners, he says, is that minimum monthly bond instalments remain unchanged and that there is a further chance now for them to lower the capital portion of their home loan accounts and reduce the effects of any future interest rate increases.

“It does seem, though, as if those who were considering fixing their bond rates may have missed the boat. The banks do not give out information about fixed rates as they determine these on an individual basis, but it is very unlikely now that borrowers will be able to get a fixed rate of less than 2 or 3 percentage points above prime.

“Since most commentators do not expect the current round of interest rate increases to go beyond a prime of 11% over the next 24 months, a premium of 2 or 3 percentage points (this would be equivalent to an extra R1 325 to R2 000 a month on a R1 million home loan) seems a high price to pay for certainty about your bond repayments.”

As for prospective home buyers, Rademeyer says, the next couple of months are going to be “make or break” time.

“Every increase in the interest rate makes it more difficult for would-be buyers to qualify for a home loan for two reasons, the first being that rising rates mean higher monthly debt repayments and less disposable income, and the second being that banks always tighten up on credit requirements when interest rates rise.

“If they are committed to buying, now’s the time to get bond pre-approval and make their move, even if they have to settle for a less expensive property to ensure future affordability.”