The interest rate hike is not all bad. Picture: Kampus Production
Yesterday’s interest rate hike has left homeowners feeling depressed and under more pressure, but if you are searching for any positives, the good news is that you will find a few.
Not only will landlords immediately benefit from the increase as more people stay in the rental market, but homeowners will also reap rewards, eventually.
Experts from the Rawson Property Group say that, ultimately, there are a few silver linings homeowners, landlords, and tenants can be thankful for as we head into the final stretch of the year.
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1. Lenders are still eager to finance home loans
Buyer affordability has taken a knock over the past 12 months, with interest rates rising from 7.5% in January to 10.5% at the end of November. This has eaten into the average consumer’s disposable income to a significant degree. However, Leonard Kondowe, Finance Manager for the Rawson Property Group, says it hasn’t slowed lending appetites at all.
“If anything, lenders are more motivated than ever to secure qualified buyers – particularly first-time buyers. They’re offering really favourable interest rates, at below prime for the most part. There are also 100% to 105% loans on offer for financially-secure buyers who prefer not to put down a deposit.”
He warns though, that opting for a higher loan-to-value ratio (such as a 100% or 105% bond) will attract a higher interest rate than a purchase with a deposit. As such, he encourages prospective buyers to save up as much as possible – but not necessarily put their purchase plans on hold.
“The most important thing is not to make assumptions. Rather get prequalified by a bond originator for accurate insight into your finance prospects and solid ideas on how to improve your credit record if necessary.”
2. Property prices are growing – but not too fast for buyers
With massive global insecurity affecting markets around the world, South African property values have proven remarkably resilient this year, says Rawson managing director Tony Clarke.
“Average growth figures have hovered around 3.5%. There are, of course, pockets of property that have done better than some, but overall performance has been reassuringly stable.”
This offers a silver lining to both current homeowners, looking to preserve the value of their money in a secure and stable asset, and prospective buyers who can still find excellent value for money on the market.
3. Rental rates are stabilising – as are tenants
Jacqui Savage, national rentals manager for the Rawson Property Group, says the rental market is also ending the year on a good note, with positive (if modest) escalation in three of its five price brackets
Tenant payment behaviour has also shown improvement – particularly in the mid- to upper-level rental brackets – with the R12 000 to R25 000 bracket experiencing its best ever good standing rate at 87%.
“It’s been great to see tenant payment behaviour recovering to post pandemic levels. It’s a positive sign that tenant affordability and rental escalations have reached a healthy equilibrium. We’re optimistic for further recovery in 2023.”
4. Year-end bonuses are on their way
Those lucky enough to have a year-end bonus incoming could add another property-related positive to their 2022 list, Kondowe says.
“By investing even a small amount of extra income into your bond, you can save tens of thousands of rand in the long-run. If you’re hoping to buy in the new year, on the other hand, your bonus can also be used to boost your deposit, reducing the size of the loan you need to apply for while simultaneously encouraging lenders to put their best finance offers forward.”
While yesterday’s interest rate hike will have a “dampening effect” on the residential property market and place further strain on consumers, Rhys Dyer, chief executive of ooba Group, says the silver lining is that it appears that progress is being made in containing inflation both locally and globally.
“It also narrows the chances of significant rate increases taking place in 2023.”
This is also positive for aspiring homeowners who may be reconsidering their decision to buy a property. Dyer says there are four factors that indicate that it’s still a good time to invest in property:
Adding to this, the current environment is good news for property investors looking at buy-to-rent options.
“Investors are able to cash-in on the demand from a new wave of tenants – those who have chosen not to buy because they’re sensitive to interest rate fluctuations.”
He explains that ooba’s stats show that the national rebound in demand for investment/buy-to-rent properties continues – rising to 8.1% of total applications in October 2022.
Carl Coetzee, chief executive of BetterBond says that, while the decision to increase the repo rate shortly before the festive season is not what consumers wanted to hear, “we must acknowledge that the Reserve Bank is doing what it can to control inflation, so that we can look forward to lower interest rates again towards the end of next year”.
“This increase, while an uncomfortable one, should help to bring inflation closer to the midline target and once inflation starts dropping, so too will the interest rate.”
Even in the current environment of economic uncertainty, High Street Auctions director Greg Dart says investors should be looking at property as a safe haven long-term investment.
“Real estate is a tangible asset. It’s bricks and mortar. Anyone with funds at their disposal right now should consider the value of property, which is likelier to deliver far greater returns in the long term than other investments, with the added advantage of being more secure.”
In addition, Dyer says, home buyers are also still able to take advantage of the positive lending environment and ease their affordability concerns by shopping around for their home loan.
“Our research shows that homebuyers who only obtain a single home loan quote will repay their home loan at an interest rate that is on average 1.03% (103 basis points) higher than those who obtained multiple quotes. This puts money back into the pocket of consumers.”
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