Benefits of owning a home remain constant amid rate fluctuations
Although higher than hoped, this week's repo rate increase is not unexpected, says Carl Coetzee, CEO of BetterBond. "While the 50 basis point increase will have an impact on monthly bond repayments, and how much aspirant buyers will be able to afford, it is worth noting that prime lending rate is still considerably lower than it was two years ago before the pandemic."
The monthly repayment on a R2 million home at the start of 2020 when the prime lending rate was 10% was R2 259 more than it will be at the current 8.25%, says Coetzee. "Furthermore, there are ways to buffer the impact of rate changes. Working with a bond originator who will negotiate with the banks on buyers' behalf to secure a better rate will help soften the blow of this and subsequent rate increases." BetterBond's average interest rate concession when applying to four banks is 0.61%
Using the same example of the R2 million bond, this means that a 0.61% concession on the current interest rate of 8.25% would reduce the monthly bond repayment by just over R750. And, if this revised monthly payment is compared with what a homeowner would have paid in 2020, the saving is a significant R3 016, explains Coetzee. "There are still opportunities for buyers who want to make the most of the comparatively low interest rate while it is still in single digits," says Coetzee.
While the property market has emerged from the pandemic stronger than expected, we can't ignore inflationary pressures and the impact of the ongoing conflict in Ukraine on global food prices, says Coetzee. "So this rate increase does serve as a reminder that affordability should always be a consideration when buying a home. Homeowners should factor future rate hikes into the calculations of what they can afford to pay on a bond each month."
Notwithstanding the challenging economic times, buyer activity remains robust and BetterBond has seen a 10% increase in the ratio of formally granted bonds year-on-year, according to April data, says Coetzee. Also, the latest Absa Homeowner Sentiment Index for Q1 of 2022 shows that 56% of respondents still believe it is better to own a home than to rent. Overall confidence in the property market is higher than it was at the end of 2021, with the sentiment towards buying property increasing marginally. Most of the respondents in favour of purchasing a property agreed that it is because it is a proven investment that accumulates value.
"While rates will fluctuate over time, affecting bond repayments and affordability, there are other reasons for buying a home that remain constant. There's the satisfaction that comes with owning an asset that will appreciate in value over time, as well as the security of knowing that the home is yours for as long as is needed," says Coetzee