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29 Jul 2014PROPERTY: Rate Increase an Urgent Signal to Homebuyers
Recent Western Cape Business News
The recent interest rate increase announced following the July meeting of the Monetary Policy Committee was expected by most economists, and is a reminder to consumers that SA is in a rising interest cycle, and that they should prepare themselves for any debt to cost significantly more by the end of next year.
So says Richard Gray, CEO of Harcourts Real Estate, who notes that several small increases such as the 0,50 percentage point increase in January and the 0,25 percentage point rise announced this week are preferable to a single big “shock” increase as they give consumers time to adjust to a new financial scenario.
“It was obviously important, from the point of view of attracting international investment, for the Reserve Bank to stick to its stated intention of increasing rates if the rate of inflation went above the 6% level, which it did last month. The perception of such fiscal stability is vital if SA does not want to risk any further downgrades from ratings agencies such as Fitch and Standard & Poor that many investors use to gauge risk.
“However, it is also really important not to put too much of a damper on our own economy, which is really struggling to achieve growth, so the Reserve Bank has quite a difficult balancing act to pull off at this stage.”
From the point of view of existing homeowners, the rate rise will of course mean an increase in their minimum monthly home loan repayments - and will hopefully also act as an “early warning signal” and prompt them to start paying more than the minimum every month and reducing those loans as fast as they can ahead of the next rate rise, he says.
“Then as far as homebuyers are concerned, it is important to note that even at 9,25%, the variable mortgage rate at the moment is still very low in historical terms – and that they should not waste the opportunity to get into the market at this level.
“Rates are going up and every 0,25 percentage point increase in the home loan rate makes it more difficult to qualify for a home loan,on top of which home prices in most areas are rising faster than inflation now - and set to keep rising because demand is still growing faster than supply.
“Consequently, delaying a purchase now – provided you are in a position to comfortably afford the bond repayments – is not a sensible move, whether you are a first-time buyer or an existing owner making a change.”
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