The pendulum has swung following a season of record-low interest rates, moving the country into a cycle of interest rate hikes. Set to meet again in May, the MPC may choose to hike interest rates further.
This is according to Adrian Goslett, Regional Director and CEO of RE/MAX of Southern Africa, who says that homeowners are advised to evaluate their finances ahead of the announcement to make sure they can afford the potential increase.
At the previous MPC meeting, Goslett says two members preferred a 50 basis point rise in the repo rate while three were in favour of the 25 basis point increase. To play it safe he recommends that homeowners check what their monthly repayments would be if interest rates were to rise by 50 basis points at the next meeting.
Equipped with this information, homeowners can then examine their budgets to find the necessary funds to afford the higher repayment amount if interest rates do indeed increase. “Being well prepared in this regard can mean the difference between being financially secure or falling hopelessly behind on repayments,” he says.
In addition to this, Goslett warns that, unless the accompanying interest rate charges are fixed, the repayments on all other debts will also increase should interest rates climb at the next MPC meeting.
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“The disposable income for those who carry other forms of debt will shrink with every interest rate hike. My advice, especially for those who are paying off a home loan, is to funnel any extra cash towards those other debt repayments ahead of the coming announcement,” says Goslett.
Elaborating on this, Goslett explains that when deciding which debts to settle first, it is advisable to go for the debt with the highest accompanying interest rate charge. “Things such as a car loan or personal loan will often carry far higher interest rate charges than a home loan, so it might make sense to try and pay off these debts as soon as possible.”
However, everyone’s situation is unique. Those who would like advice specific to their circumstances are encouraged to speak to a professional financial advisor. Those who are unable to keep up with the repayments on their home loan should also speak to a real estate professional to find out what other options are available to them.
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Carl Coetzee, CEO of BetterBond says property is a good investment option, but the thought of having to cover the costs of owning a home can be daunting for aspirant buyers.
“After two years of comparatively low interest rates, we are still seeing considerable interest from first-time buyers who account for 60% of all BetterBond’s home loan applications,” says Coetzee.
“What is encouraging is that there has been an almost 8% increase in the number of formal grants to first-time buyers for the past 12-month period (year-on-year for April) and an increase of just over 7% in the approved bond size for these buyers.”
READ: 25% more homeowners left the market in 2021 compared to 2014 - 2020 average
If you’re considering joining this group of first-time buyers, here easy ways in which you, as an aspirant homeowner, can enter the property market.
Affordability is always important when buying a home. While you need to know what you can afford to pay each month on a bond, you have to also be prepared for the upfront costs associated with buying a home. These include transfer duty, transfer costs (lawyer’s fees), bond registration costs and other expenses. Once you are a proud homeowner, you will also have to pay utility costs and for regular repair and maintenance.
“It’s therefore advisable to obtain pre-approval from a bond originator so that you have a clear idea of what you can afford. Pre-approval also improves your chances of securing a bond,” says Coetzee. The approval rate for clients who pre-approved with BetterBond first is 90% of all applications submitted to banks on their behalf. “The seller will also see that you are a serious buyer who has already done the paperwork and credit checks,” adds Coetzee.
Although the repo rate is gradually starting to climb again, and the prime lending rate is now at 7.75%, a bond originator will apply to more than one bank on your behalf to secure a lower interest rate - called a rate concession.
SEE: Gauteng’s top suburbs for first-time buyers and investment hot spots
Currently BetterBond’s average interest rate concession when applying to four banks is 0.61%, says Coetzee. This means that the difference between the highest and lowest offer you receive from the four banks is 0.61%. For example on a R2 million bond, the monthly repayment at prime minus 0.61% - or at 7.14% - would result in a monthly saving of R745.
While it’s always advisable to put down a deposit - even if only 10% of the home’s value - when applying for a bond, first-time buyers often don’t have the financial means to do so. South Africa’s main banks offer a range of loan products that include loans of as much as 110% for young professionals under the age of 30.
“A loan of 100% or more makes it possible to buy a home without having a deposit. It could also cover the transfer and bond registration fees that need to be paid upfront,” explains Coetzee.
Another way of making homeownership a reality if affordability is a concern is by buying below the R1 million threshold. There are no transfer duties payable for homes of below R1 million - a considerable saving for a new buyer.
Buying in a new development will also save you on transfer duty costs, although you will still need to pay transfer costs to the conveyancing attorney. Aside from the initial costs, buying in a new development will save you money on repairs and maintenance for the first few years.
READ: FLISP policy revised | 'No need for a home loan to obtain government subsidy'
First-time buyers with a household income of between R3 501 and R22 000 may qualify for a Finance Linked Individual Subsidy (FLISP) if they meet the criteria. The once-off subsidy amount has increased to between R30 000 and R130 504 depending on the applicant’s monthly income, and it’s now possible to obtain the subsidy without first having been granted a bond, says Coetzee. “This makes it even easier for qualifying applicants to own a home.”
While affordability is a consideration when buying a home, especially as a first-time buyer, aspirant homeowners do have options, says Coetzee.
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