Status quo on interest rates

Status quo on interest rates

Despite the urgent need to stimulate economic growth and job creation, the Monetary Policy Committee of the Reserve Bank has decided to leave interest rates as they are, at least until November.

This follows the news earlier this month that SA had avoided a technical recession by delivering GDP growth of 3,1% in the second quarter, and that Moody's rating agency has estimated economic growth for the year at 0,7% - ahead of the Reserve Bank's prediction of 0,6%.

This week's decision means that the repo rate will remain at 6,5% and the prime lending rate - and home loan "base rate" - at 10% until the next meeting of the MPC in November, says Carl Coetzee, CEO of South Africa's foremost bond originator BetterBond.

"At this rate, the monthly repayment on the average first-time buyer home loan of R848 000 will remain at around R8200, while the monthly repayment on the average new home loan of R949 000 that is currently being granted to repeat buyers will remain at around R9200.

"According to the National Credit Regulator (NCR), the average home loan amount currently owed by existing home-owners is R558 000, and at an interest rate of 10%, the monthly repayment on such a loan of just under R5400 will also not change."

In addition, he notes, there will be no decrease for now in car instalments, credit card repayments or other debt commitments, "and we would urge consumers to exercise spending caution as we move towards the last quarter of the year and the holiday season.

"We do not, however, expect the stasis in interest rates to alter the slow but steady increase in residential property market activity that has been taking place over the past year. Our own statistics* reveal a 5,22% increase in the number of home loan applications in the 12 months to end-August, while the Reserve Bank's own figures indicate a 4,6% growth in the total of outstanding mortgages in the year to end-July."

The reasons for this buyer enthusiasm, says Coetzee, are chiefly the slowing growth in house prices and the increased willingness of banks to advance home loans.
"And the latter is particularly true in the case of buyers who apply for loans through reputable bond originators like BetterBond. While the NCR puts the current rate of credit approval at just 44%, our approval rate for bond applications submitted is 76%.

"What is more, our multi-lender submission process ensures that our clients are offered the best possible interest rates, which is very important because even a concession of 0,25% or 0,5% can mean more affordable monthly repayments - and big savings on the total cost of a home over the lifetime of the bond."
*BetterBond is SA's biggest bond originator, accounting for 28% of all new mortgage bonds registered in the
Deeds Office annually.