The increase in the repo rate by a further 25 basis points on 27 January, resulting in a prime interest rate of 7,5%, was not unexpected and is not likely to significantly influence the housing market. Here are the views of a few property experts:
Carl Coetzee, CEO, BetterBond
While the repo rate increase will mean a slight increase in monthly bond repayments, it won’t have a significant immediate impact on the housing market which has shown remarkable resilience during the pandemic, says Coetzee.
“At a prime lending rate of 7,5%, homeowners can expect to pay a nominal R152 extra on a bond of R1m. Of course this amount increases with the value of the bond, but the additional monthly payment is still well below what consumers were paying at the start of 2020 when the prime lending rate was at 10%.”
Buyer activity remains positive despite the gradual upswing in interest rates which started in November last year. BetterBond reported a 12,5% increase in bond application approvals year-on-year in December last year. Deeds Office registrations increased by almost 11,5% for the six months ending in November, suggesting that buyers are still making the most of the favourable lending environment.
Andrew Golding, chief executive, the Pam Golding Property group
“Following on from November’s repo rate increase, we had hoped that there would be a pause in the upward cycle trend. However, with the December consumer inflation rate (at 5,9%) close to the upper limit of the Reserve Bank’s inflation target and with local risks to the inflation outlook firmly on the upside – the SA Reserve Bank Monetary Policy Committee (MPC) was likely to take this decision to increase rates now,” Golding says.
On the positive side, banks are continuing to compete for market share. “Additional indications of favourable lending conditions include the 5,5% increase in the size of mortgages in Q4 2021 compared to year-earlier levels and the 24% decline in deposits as a percentage of purchase price during the same period. During the final quarter of last year, deposits stabilised at 7% of the purchase price compared to 9,2% in Q4 2020,” he says.
And while 100% bond applications have stabilised, the approval rate continues to rise, reaching 83,7% in December, approaching the pre-Covid high of 85% in February 2020.
“Pam Golding Properties continues to see encouraging momentum in sales activity in the housing market, while we also anticipate that a moderate rise in interest rates is likely to see the ‘buy vs rent’ dynamic shift back towards rentals, possibly reinforcing the rising demand for investment properties seen in late 2021,” Golding says.
Samuel Seeff, chairman, Seeff Property Group
Against the backdrop of rising inflation and a higher oil price, Seeff says, while unfair, it is inevitable that the consumer will unfortunately have to absorb the higher costs even though the rising inflation is not as a result of higher consumption.
Nonetheless, even with the hikes, the rate remains at the lowest levels in decades and will continue serving as an inducement to buyers. “We expect the market to absorb the hike comfortably and for the momentum to continue.”
Seeff expects another good year for the property market and says it remains particularly favourable for buyers. “The momentum will continue creating opportunities for sellers, and aside from continued trade in the sub-R1,5m price band, we anticipate strong activity in the R3m to R8m range.
“Despite the momentum in the market, there has been a steady flow of new stock and while there are stock shortages in some areas and price bands, the market remains well-balanced. Price growth has been kept flat, and largely inflation-linked due to slow economic growth and rising inflation. Buyers can therefore still benefit from well-priced stock in the market,” Seeff says.
Gerhard Kotzé, MD, RealNet
The interest rate increase should be a signal to all prospective buyers to assess how much the real estate market has shifted in the past few months – and what effect this could have on their buying or investment plans.
“For a start, the rate of inflation has risen steadily and is now running at close to 6% a year, due mostly to higher fuel and electricity costs, but this also means that most households have less disposable income, which is one of the key factors that banks look at when considering a home loan application.”
“In addition, many households now have considerably higher debt levels than they did in 2020 at the start of the pandemic. In fact, (according to the National Credit Regulator) many are paying more than half of their after-tax income towards the reduction of debts– and given that wages and salaries are quite static at this stage, every interest rate rise is going to increase that debt repayment percentage.”
“And with further electricity, fuel and other cost increases slated for this year, there is going to be less and less room for homebuyers to afford or qualify for a bond.”
“There really is no time for prospective homebuyers to waste, and our advice would be that they look seriously at buying smaller, less expensive properties now to ensure they have some financial leeway to cope with the effects of increasing interest rates over the next 12 to 18 months,” Kotzé says.
Rhys Dyer, CEO, ooba Group
Despite a potential prime lending rate increase of between 0.75% and 1% over this calendar year, 7.75% is still relatively low in comparison to the pre-Covid-19 interest rate of 10%, says Dyer.
“Important to remember is that the competition between banks remains fierce and that despite the hike late last year, the average interest rate achieved for our customers (in quarter 4 of 2021) was still prime less 0.21%.”
Looking at a sliding scale where most home loan activity takes place, Dyer notes that monthly repayments on a R1,5m bond will increase by just R304 per month, while repayments on a R3m home will increase by R457.
“We encourage current and prospective homebuyers to budget for the projected increases and to ensure that their credit scores are healthy in order to receive the best possible rate from the banks,” he says.
Yael Geffen, CEO, Lew Geffen Sotheby’s International Realty
The repo rate hike comes as no surprise, says Geffen. “Economists predicted the increase in the repo rate in the last quarter in 2021 – they predicted this one and they predict further increases by the same increment each quarter for the remainder of the year.
“Coming off a base of historically low interest rates we’ve known for a year now that increases were due and it’s certainly no cause for concern because it hasn’t affected the turnaround in the property market, which is looking bullish across all sectors,” she says.
“Despite the encouraging revival in recent months, the market still very much favours buyers who have their choice of properties across certain price bands, while stock shortages are beginning to appear in others. Banks are competing for the mortgage market, though, and they’re offering very attractive rates, so with the real estate sector increasingly active, the time to dive in is now,” Geffen says.