6 minute read
Interest rate hikes:
The good news for property owners, buyers, and tenants The latest increase has left homeowners depressed and under increased pressure, but there are positives
NOT ONLY will landlords immediately benefit from the rate increase as more people remain in the rental market, but homeowners will also reap rewards, eventually.
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Experts from the Rawson Property Group say that ultimately, there are silver linings homeowners, landlords, and tenants can be thankful for as we head into the final stretch of 2022.
Lenders remain 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, the finance manager for the Rawson Property Group, says it hasn’t slowed lending appetites.
“If anything, lenders are more motivated than ever to secure qualified 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 – 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.”
Property prices are growing – but not too fast for buyers
With massive global insecurity affecting markets across the world, South African property values have proven remarkably resilient this year, says Rawson managing director Tony Clarke.
“Average growth figures have hovered at around 3.5%. There are, of course, pockets of property that have done better than some, but overall performance has been reassuringly stable.”
This is a silver lining to homeowners looking to preserve the value of their money in a secure and stable asset, and prospective buyers who can find value for money on the market.
Rental rates are stabilising – as are tenants Jacqui Savage, the 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 upperlevel rental brackets, with the R12 000 to R25 000 bracket experiencing its best good standing rate yet, 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.
Year-end bonuses are on their way
Those lucky enough to get a yearend bonus 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 could 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 November 24th’s interest rate hike was expected to have a “dampening effect” on the residential property market and place further strain on consumers, Rhys Dyer, the chief executive of ooba Group, says the silver lining is that it appears that progress is being made in containing inflation locally and globally.
“It also narrows the chances of significant rate increases 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 a good time to invest in property:
✦ The revised interest rate is one of the best experienced over the past 25 years.
High interest rates slow new demand for property, which results in lower property prices, meaning that it’s still a buyer’s market.
✦ Banks continue to compete for home loan business by approving home loans on attractive terms.
Property prices remain affordable across many parts of the country.
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 says ooba’s stats show that the national rebound in demand for investment/buy-torent properties continues – rising to 8.1% of total applications in October 2022.
Carl Coetzee, the chief executive of BetterBond, says that while the decision to increase the repo rate 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 environment of economic uncertainty, High Street Auctions director Greg Dart says investors should be looking at property as a haven for longterm 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.”
Dyer says home buyers are able to take advantage of the positive lending environment and ease their affordability concerns by shopping around for a home loan.
“Our research shows that homebuyers who obtain only 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.”
HOME buyers are able to take advantage of the positive lending environment and ease their affordability concerns by shopping around for a home loan.
