Property experts are hoping that the stable interest rate will help homeowners recover and encourage first-time buyers to take a step onto the property ladder.
The market has been subdued in recent months as 10 consecutive interest rate increases takes its toll on consumers’ finances.
Even though South African Reserve Bank governor Lesetja Kganyago stated that the interest rate hiking cycle has not ended, the unchanged rate gives consumers a little bit of breathing room and inspires hope that a rate peak could be around the corner.
Read our latest Property360 digital magazine below
Economists expect the rate to start coming down in 2024.
Yael Geffen, chief executive of Lew Geffen Sotheby’s International Realty,says 10 successive rate hikes have hurt the market, and it shows particularly in the drop in first-time home buyers – those under the age of 35.
“Lightstone data released last month showed that property transfers (of properties transacting for more than R20 000) to buyers below the age of 35 over the past ten years have declined from 87 675 (45%) in 2012 to 81 519 (40%) in 2017 and 69 304 (38%) in 2022.
“This is the population segment of investors that should be growing – our homeowners of the future. When young buyers can’t afford to get a foot on the property ladder, it shows an economy that’s in trouble.”
While yesterday’s announcement is a good starting point, she says the country needs prime lending rate stability for the remainder of the year.
An 11th successive rates hike would have been a step too far for South African consumers already battling extremely high food prices and electricity price increases, says High Street Auctions director Greg Dart.
Yesterday’s decision was a “very positive step in the right direction, but a first step only”.
“Mortgage holders need time to recover from the economic backslide they’ve faced since the upward rates cycle started in 2021, which means we need to see the prime lending rate remain stable for the remainder of the year.”
Leonard Kondowe, finance manager for Rawson Finance, says bond repayments have risen faster as a result of the previous rate hikes and salaries haven’t come close to matching those changes. That has put a lot of homeowners under unexpected – and growing – financial pressure.
“My best advice, under the circumstances, is to focus on reducing unnecessary spending, avoid taking on new debt, and follow a strict monthly budget.”
Where simple budgeting will not suffice, Kondowe recommends approaching home loan providers to discuss debt restructuring options.
“Lenders are very open to compromises that will help protect their investments. Don’t be shy to approach them and discuss options. At best, you’ll find a mutually beneficial solution. At worst, you’ll walk away with a better idea of what your next steps should be.”
As for buyers, Kondowe says lenders are hungry for qualified bond applicants, and are competing against one another to secure new clients. However, finance offers are not quite as favourable as they have been, with the majority of offers falling at or just below prime.
“As always, the stronger your financial profile and larger your deposit is, the better your offer is likely to be. It is possible to secure a bond of 100% to 105%, but this is seldom the best financial decision. If it was me, I’d err on the side of affordability to future-proof my investment, making sure my monthly repayments were at least one or two percent below my maximum affordability.”
Easing financial pressures on consumers is the most effective way to re-stimulate consumer spending and residential property demand, says Rhys Dyer, chief executive of ooba Home Loans. South Africans have been under significant pressure and this is reflected in the drop, amongst other things, in demand for property.
While the road back to a thriving property market may still take some time, a cooling of rates is most certainly needed.
ooba Home Loan’s regional update for June 2023 indicates good news in the form of an uptick in first-time homebuyer applications in the Eastern Cape and in Pretoria and North West (the North). The Western Cape also continues to register robust growth in applications for investment/rental properties, at a three-month moving average of 30,4% of applications in June 2023, relative to 5,9% combined across the other provinces in South Africa.
“What is good to see is the buy-to-let investment currently taking place – particularly in the Western Cape. Investors are capitalising on the market and realise that many people are now in search of rental properties.”