Latest rate cut a possible foot in the door for first-time homebuyers
Carl Coetzee, BetterBond CEO
The fourth interest rate cut of 2020, as announced today by the South African Reserve Bank Monetary Policy Committee, is good news for consumers, but it could be even better news for those who have been renting for a long time and are looking to become homeowners. Because with rates at 50-year lows, for some the scales of their monthly budgets could be at a tipping point where it might become cheaper to buy than to rent.
Add to the equation the fact that there's no longer any transfer duty payable on property prices up to R1 million and the balance could tilt further in favour of buying versus renting.
Of course, the purchase price is only the start of your expenses when owning property and is not the only consideration when calculating whether you have the disposable income to afford buying, or not. You also need to be able to afford rates and taxes, water and electricity, regular repairs and maintenance, and more.
The general idea is that your monthly home loan repayment should be around 30% of your gross monthly income, before tax and expenses. In this regard, record-low interest rates will therefore bring certain relief in terms of easing cash flow, and could be the key for many first-time homebuyers to setting foot on the property ladder.
Let's look at the savings for home-owners, based on today's 50-basis point rate cut, from 7.75% to 7.25% as well as the previous rate cuts earlier this year, taken over the typical bond term of 20 years.
|Monthly bond instalment|
(9,75% - 7,25%)
over 20 years
|R250 000||R2 371||R2 209||R2 052||R1 976||R395||R94 884|
|R500 000||R4 743||R4 419||R4 105||R3 952||R791||R189 769|
|R750 000||R7 114||R6 628||R6 157||R5 928||R1 186||R284 653|
|R1 million||R9 485||R8 837||R8 209||R7 904||R1 581||R379 538|
|R1.25 million||R11 856||R11 046||R10 262||R9 880||R1 976||R474 423|
|R1.5 million||R14 228||R13 256||R12 314||R11 856||R2 372||R569 307|
|R2 million||R18 970||R17 674||R16 419||R15 808||R3 162||R759 076|
|R3 million||R28 456||R26 511||R24 628||R23 711||R4 745||R1 138 614|
|R4 million||R37 941||R35 348||R32 838||R31 615||R6 326||R1 518 153|
|R5 million||R47 426||R44 186||R41 047||R39 519||R7 907||R1 897 690|
|R6 million||R56 911||R53 023||R49 257||R47 423||R9 488||R2 277 229|
Long-term tenants wanting to own their own homes are, of course, not the only potential beneficiaries. Investors looking to expand their portfolio by way of a property purchase could also be in the pound seats, with affordability improving across all price bands. As always, however, property must be viewed as a long-term investment - not something to be snapped up in haste, for short-term gains. Its reputation as a resilient asset class is based on a commitment over time.
In addition to the three that preceded it, this latest rate cut will aid the economic recovery of our national economy as South Africa slowly starts to emerge from the lockdown.
A functioning property sector can help to unlock income and liquidity for a whole host of role-players along the entire value chain. These include, but are not limited to, banks and bond originators, property developers, real estate agents and conveyancing attorneys. This will help stimulate economic activity and generate taxable income that could, in turn, help turn the wheels of the fiscus again.
In order to maximise the considerable contribution that this industry can make to rebuilding our economy, it is essential that estate agents, currently languishing on Level 2 of the lockdown regulations, be allowed to function as a matter of urgency, with the necessary safety precautions in place. Without them, property sales will remain sluggish and thousands of South Africans will be denied the dream of owning the roof over their own heads.