Buyers urged to make the most of historic low interest rate

After a challenging year, 2021 looks set to be bright for the residential property market as interest rates are forecast to remain in single digits for a while yet.

"While a sixth repo rate drop would certainly have been welcomed, the decision to hold the repo rate steady means that buyers still have golden opportunity to make the most of a prime lending rate of 7% - the lowest in 55 years," says Carl Coetzee, CEO of BetterBond.

Says Absa: "Although inflation for September came in below the implied forecast as at the last meeting, the Monetary Policy Committee (MPC) remains concerned about South Africa's big fiscal challenges. The decision is in line with the MPC's pattern of decision-making since the onset of COVID-19 spread, suggesting growing caution about the need for further easing."

You might also find it beneficial to rent a home, he says, when you have just relocated to a new town and need some time to find out more about various areas where you might like to buy property, or when you have just sold your family home and are not sure where you want to settle in retirement.

The wheels are already in motion for a resounding housing market boom in 2021, says Coetzee. "We have seen five consecutive drops in the repo rate this year, and the resultant shift in affordability has seen a massive surge in bond applications, of which more than 70% have been from first-home buyers." FNB reports that year on year, mortgage applications are about 9% higher than this time last year - a clear sign of a property market in recovery.

There are, however, some early signs that the market is starting to turn. The gap between the listed price and the discounted purchase price has dropped from 13% in the first quarter of the year to 11%, suggesting that demand is increasing as more people are able to afford to bond. Properties are also selling quicker, spending an average of 10.6 weeks on the market instead of the 14.1 weeks reported by the FNB Property Barometer in July.

But Coetzee urges those with the financial means, to make the move to invest in property while the lending environment is favourable. "Eventually, the interest rates will climb to 10% and above, and buyers should factor this into their financial planning. The current interest rate has made owning a home more accessible and in fact, for the first time since 1994, owning a home has become more financially viable than renting a property of the same value." In January, when the prime lending rate was 10%, the monthly repayment on a R1 million home would have been about R1 900 more than it is now, with a prime rate of 7%. Over a 20-year bond term, this results in a substantial saving of R455 000.

"We therefore encourage buyers with the means to plan ahead and apply for bonds now, while the interest rates are so favourable," adds Coetzee.