RESERVE BANK GIVES BORROWERS A “BREATHER”
Reserve Bank Governor Lesetja Kganyago announced after this week’s meeting of the Monetary Policy Committee (MPC) that there would be no change in the repo rate, which currently stands at 6%, or in the prime and variable mortgage interest rates, currently 9,5%.
There had been concerns following a 0,25 percentage point repo rate increase in July that the Reserve Bank was in a “hiking cycle” and would continue to raise rates in its determination to keep inflation below its 6% target.
“However,” says Shaun Rademeyer, CEO of SA’s leading mortgage originator BetterLife Home Loans “it seems that at this meeting the MPC gave more weight to the risks inherent in slowing economic growth at home and increasing financial uncertainty abroad than to the upside risks for inflation. It was no doubt helped in this decision by the fact that international oil prices have recently declined again.”
“And leaving the repo rate at 6% and the prime rate at 9,5% will give consumers some breathing space to prepare for further interest rate increases in the coming year by paying off as much of their current debt as possible.”
The effect of this week’s decision for existing homeowners, he says, is that minimum monthly bond installments will remain unchanged – and that there is a further chance now for them to lower the capital portion of their home loan accounts and their monthly mortgage repayments in anticipation of any future rate increases.
As for prospective home buyers, the next couple of months may well be “make or break” time, because every increase in the interest rate makes it more difficult for them to qualify for a home loan.
There are three reasons for this, notes Rademeyer, the first being that home prices continue to rise, albeit quite slowly. “Secondly, banks always tighten up on credit requirements when interest rates rise and third, higher rates mean higher monthly bond repayments which are less affordable, especially for first-time buyers.”
“Consequently, we would say to those who are planning to buy that now’s the time to enlist the help of a reputable mortgage originator such as BetterLife Home Loans to establish what their home loan options are, get pre-approval and make their move, even if they have to settle for a less expensive property to ensure future affordability.”