New Reserve Bank Governor Lesetja Kganyago announced today that thanks to lower demand for private sector credit, a sharp drop in oil prices that drove the inflation rate down to 5,9% at the end of October and weak economic growth, the Monetary Policy Committee had decided once again to leave interest rates unchanged.
He said it had been unanimously decided to keep the repo rate – which is the rate at which the Reserve Bank lends to commercial banks – at 5,75% and prime (as well as the variable home loan interest rate) at 9,25%.
As a result, the repayment on a 20-year home loan of R763 543 – which is the current national average approved bond amount – will remain at R6993 per month, according to SA’s leading mortgage origination group BetterBond Home Loans, while the repayment on the average home loan of R645 007 that is currently being approved for first-time buyers will stay at R5907 per month.
“In addition,” notes BetterBond CEO Shaun Rademeyer, “there will also be no increase for now in car instalments, credit card repayments or other debt commitments, and this will give households a further opportunity to lower their debt burden now if they spend carefully over the year-end holiday period, and put themselves in a much better financial position by next year.”
Meanwhile the stasis in interest rates, he says, will further boost consumer confidence in the residential property market (and not least because it speaks of better economic times to come) but it will probably not make much difference to sales numbers, or prices, until developers re-enter the market strongly and start delivering new stock.
“There is an acute shortage of residential stock for sale in popular areas currently, and lack of new development to take up the slack, which has caused house prices to rise faster than expected in recent months.
“And while there has been no slowdown in demand, these increases have made it more difficult for prospective buyers to qualify for home loans and finalise their purchases, with the result that price resistance is now becoming evident in many parts of the country.”
Nevertheless, Rademeyer notes, BetterBond’s latest statistics show that the percentage of home loan applications being declined outright dropped to 30% in the year to end-October, compared to 34% in the previous 12 months, while the percentage of applications declined by one bank but then “rescued” and approved by a different bank grew from 36,4% to 37,5% in the same period.
“This underlines the fact that the banks are even more willing to lend to homebuyers than they were at this time last year – provided that those buyers are in good shape financially. The unchanged interest rate is thus really good news for those who are trying to pay off their debts and increase the amount of discretionary income they have available to afford a home loan repayment.
“Of course it also helps enormously if their home loan applications are completed correctly and properly motivated, and this is why there is a distinct advantage in applying through a reputable originator like BetterBond, which is prepared to caretake individual applications and, if necessary, submit them to a second and sometimes even a third lender.”
This year’s interest rate increases have done very little to slow housing demand, and have had no negative effect at all on home prices, according to the latest statistics from BetterBond Home Loans, SA’s leading mortgage origination group.
These show, says CEO Shaun Rademeyer, that the average home purchase price increased 6,33% in the 12 months to end-October to R915 678, while the average purchase price for first-time buyers rose 4,76% to R645 007.
“And lending by the banks has kept pace with this growth. For a start, the percentage of purchase price required as a deposit has declined over the past 12 months by 3,53% on average – and by 2,41% in the case of first-time buyers – which makes it easier for buyers to save up the cash they need to complete home purchases.
“At the same time, the average approved bond size in our portfolio has increased by 7,11% to R763 543, and the average for first-time buyers has grown by 5% to reach R591 165.”
What is more, he says, the percentage of home loan applications being declined outright dropped to 30% in the year to end-October, compared to 34% in the previous 12 months, while the percentage of applications declined by one bank but then “rescued” and approved by a different bank grew from 36,4% to 37,5% in the same period.
“This underlines the fact that the banks are more willing to lend to qualified homebuyers than they were at this time last year – provided that applications are completed correctly and properly motivated. And this is why there is a distinct advantage in applying through a reputable originator like BetterBond, which is prepared to caretake individual applications and, if necessary, submit them to a second and sometimes even a third lender.”
As for demand, Rademeyer says, the BetterBond statistics show that the total number of home loan applications submitted to the banks has actually grown by 0,5% in the past 12 months – and that the actual number of approvals has increased by the same margin.
“There has, however, been a decline in the percentage of applications coming from first-time buyers, from 51,6% to 48,1% in the 12 months to end-October, which confirms that repeat homebuyers are currently the main driving force in the market.”