Seven reasons why holding the repo rate steady is good news

Seven reasons why holding the repo rate steady is good news

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Record-low interest rates have gone a long way to stimulating the property market at a time when many expected it to spiral downwards, says Carl Coetzee, CEO of BetterBond. "The Reserve Bank keeping the repo rate steady at 3.5%, and therefore the prime interest rate at 7%, affords more buyers an opportunity to invest in property. Increased buyer activity is good for the housing market, and good for the overall economy," says Coetzee. Holding the repo rate steady is good news for a number of reasons:

1. First-time homebuyers

First-time homebuyers will continue to have an opportunity to gain a foothold on the property ladder as low interest rates make property more accessible. 60% of BetterBond home loan applications for the 12 months ending August 2021 were for first-time homebuyers. By approaching more than one bank, a bond originator like BetterBond can negotiate a better interest rate as banks vie to offer the best home loan deals. The average BetterBond interest rate concession is 0.61% below prime. With the current prime interest rate at 7% this brings the interest rate on a home loan down to 6.39%. This means a monthly saving of more than R700 on a R2 million bond with a 20-year loan term.

2. Improved affordability

Improved affordability means that in many cases it has become cheaper to own rather than rent a property of the same value. BetterBond has seen a strong uptick in home loan registrations, with a 136% increase for the six months to July 2021. This comes off a period last year when the market was inundated with applications because of pent-up demand created by lockdown. For the same period there has been a triple-digit percentage increase across all provinces, except Mpumalanga. While the September 2021 FNB Property Barometer suggests that demand is moderating, after a strong rebound at the end of 2020 and early 2021, the volumes of BetterBond home loan application still point to strong buyer demand, fuelled largely by record-low interest rates. August 2021 saw a 27% increase in bond applications year on year.

3. House prices

House prices are likely to either strengthen or stabilise. They have already risen considerably, increasing by a cumulative 5.6% since the start of 2021, according to the September 2021 FNB Property Barometer. After more than a year of low interest rates, buyers across all price bands are making the most of the favourable lending environment. This increased demand for property has bolstered house prices countrywide. The average approved bond size at BetterBond has risen by 15.14% for the 12 months ending August 2021, and by just over 13% for first-time homebuyers. At the upper end of the market, homebuyers are also reaping the benefits of lower interest rates, with many opting to upgrade to larger homes.

4. Positive sentiment

Consumers have reason to maintain positive sentiments towards investing in property. The June 2021 Absa House Price Index shows a fourth consecutive year of improved sentiment towards buying property, the highest since the Index was launched in 2015. While unrest in some parts of the country will impact sentiment in the next quarter, low interest rates will sustain confidence and may stimulate renewed interest in semigration.

5. Property market

The property market will remain dynamic, with houses spending an average of eight weeks on the market, according to FNB - a marked improvement on the long-term average of 13 weeks. At the lower end of the market, where demand is strongest, FNB reports that the time properties are listed is only about five weeks.

6. Savings on bond repayments

Homeowners can look forward to more savings on their monthly bond repayments. The monthly saving on a R1 million bond, with the prime lending rate having dropped from 10% to 7%, is almost R2 000. Over a 20-year period, the interest saved is just over R455 000.

Bond AmountMonthly saving from 10% to 7%Interest saving over 20 years from 10% to 7%
R 250 000R 475R113 834
R 500 000R 949R22 667
R 750 000R1 423R341 501
R 1 millionR1 897R455 335
R 1,25 millionR2 372R569 168
R 1,5 millionR2 846R683 002
R 2 millionR3 794R910 669
R 3 millionR5 692R1 366 004
R 4 millionR7 589R1 821 338
R 5 millionR9 486R2 276 673
R 6 millionR11 383R2 732 007

7. Paying off home loans sooner

Homeowners who have the means can continue their monthly bond repayments at instalments in line with the higher prime interest rate and, as a result, look forward to paying off their home loans much sooner. On a R1 million bond, with the prime lending rate at 7%, the monthly home loan repayment is about R7,750. However, if one continues to pay your bond at the amount it was when the prime lending rate was 10% - an additional payment of nearly R2 000 - you could shave almost seven years off your loan term and save just over R321,000 in interest.

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