Don’t be deterred by rate increases, home buyers advised
Most financial experts are positive that this week’s interest rate increase will not be the last this year, as the Reserve Bank must try not only to keep a lid on inflation, but also to ensure that SA remains competitive with other countries as an investment destination.
So says Berry Everitt, CEO of the Chas Everitt International property group, who notes: “When the US, the UK and other First World countries raise their interest rates – as they have done lately for the first time in years – investors tend to lose some interest in emerging economies like SA, and that has a negative effect on the Rand.
“On the other hand, raising our interest rates at the same time keeps money flowing into the country, bolsters the Rand and keeps the prices of fuel, food and other goods lower than they might otherwise be, which is good for us all, even if it is tough on those with debts to pay off.”
What is more, he says, rising interest rates should not deter home buyers from entering the market now, especially if they are first-time buyers, because there is every reason to believe that home prices will continue to rise this year. “The main reason is that the unexpectedly high number of potential homebuyers over the past two years has not been matched by a similar increase in the delivery of new homes, with the result that inventory in many areas is already in short supply.
“According to the latest statistics from property data company Lightstone, there were around 268 000 home transfers in 2021 – or just a handful more than recorded by the Deeds Office for 2019, before the Covid-19 pandemic. But in 2020, there were 183 000 – or at least 50 000 more than were expected, given the fact that the market was only active for half the year – thanks to the big rate cuts made to try to protect the economy.”
Meanwhile, the latest building numbers from StatsSA reveal that fewer and fewer new homes are being completed, while the number of plans being passed for future new homes is also slowing down rapidly – “and we believe this trend will continue to put upward pressure on prices and could have an even greater effect on affordability than the expected interest rate increases over the next few months,” says Everitt.
“The experts are expecting these rate increases to push the prime rate back up to 8,75% by the end of 2022, but that would still be lower than in the six years prior to the pandemic, when it was at least 9% but usually much higher.
“In our experience the rate increases are also making the banks even more competitive in trying to attract new home loan business, and providing buyers who have good credit records with the opportunity to negotiate hard for rate concessions, especially if they are working with a good mortgage originator.”
However, he points out, buyers who defer a purchase now may well find themselves priced out of the homes they really want by next year, because they will have to earn considerably more in order to qualify for bigger home loans and prove they have enough disposable income to cover a higher monthly loan repayment.
“Consequently, we would advise all prospective buyers not to delay now but rather to accelerate their purchase plans and work with qualified and reputable estate agents to secure their new homes as soon as possible.”