Repo rate holds steady as demand for residential property grows by 35%

Posted On Thursday, 25 March 2021 22:43 Published by
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South African home buyers can look forward to a few more months of record-low interest rates as the Monetary Policy Committee has once again opted to hold the repo rate steady at 3.5%.


“While a modest cut would have been welcomed, the five consecutive repo rate cuts announced in 2020 certainly provided ample impetus for the surprise turnaround of the housing market, notwithstanding the pandemic and associated economic challenges,” says Carl Coetzee, CEO of BetterBond. “Keeping the repo rate steady during the first quarter of this year means that aspirant home buyers still have an opportunity to make the most of the record-low prime lending rate of 7%.”

The knock-on effect of the South African Reserve Bank’s aggressive approach to the repo rate is still being realised, with the total value of home loans granted to buyers (excluding cash deals) increasing by 35% year-on-year for the six months ending January 2021. BetterBond’s home loan business grew in value by 46% over this period, as the historic-low interest rates encouraged more potential buyers to apply for bonds.

The latest FNB Property Barometer (dated February 2021), notes that interest rate-induced demand remains strong, although there are signs that momentum is slowing. That being said, FNB’s data is showing better-than-expected house price growth; evidence of “the decoupling of economic fundamentals and housing market outcomes”. In contrast to recent periods, affordability is no longer a stumbling block for many home buyers, says Coetzee. As a result, the average bond size for repeat buyers has increased by 11% in February, year-to-date, and by 12% for first-home buyers.

House price inflation for February increased to 4.2% year-on-year, up from 3.9% in January. FNB attributes the resilience of the property market during the last few months to “ultra-low” interest rates which made bond payments more affordable for those whose income was not affected by lockdown. “With the favourable lending environment, the average deposit required for a first-home buyer has dropped by 7% in February, year-to-date, and by 11% for repeat buyers. Six out of 10 BetterBond applicants secure a 100% loan, which means that no deposit is required,” says Coetzee.

The uptick in first-home buyers is certainly one of the greatest success stories of last year’s property market rebound, says Coetzee. While first-home buyer applications increased to more than 70% between June and December last year, they are also able to afford far more home than this time last year. “According to BetterBond’s applications, the average purchase price for a first-home buyer increased by almost 10% in February, year-on-year.

A buyer with a monthly salary of R25 000 is now able to afford a home of just over R967 000, with a monthly installment of R7 500.” The same buyer would have been able to purchase a property of just over R778 000 last year when the interest rate was at 10%. As there is no transfer duty payable on a bond of less than R1 million, a first-home buyer would only have to pay a deposit and the legal costs, a considerable saving that makes home ownership more attainable.

“With inflation currently at 2,9%, below the South African Reserve Bank’s target range of 3% to 6%, it is understandable that the Monetary Policy Committee has opted again to maintain the status quo, with no projections of a drop in the near future,” says Coetzee. However, forecasts suggest that two repo rate hikes are possible towards the end of the year, he adds.

Adrian Goslett, Regional Director and CEO of RE/MAX of Southern Africa therefore advises homeowners to leave room in their budgets for a possible increase of around 0.5 points during the course of 2021. “The MPC has warned of two potential increases of 25 basis points in the second and third quarters of 2021, but this is all dependent on how the economy performs and many economists predict that an increase is not likely to be necessary. Homeowners should bear this in mind when budgeting for the year ahead.”

Goslett adds that activity within the property market has been at an all-time high following the series of interest rate cuts that occurred last year. “Our reported sales figures year-to-date for February reflect a 33% growth on last year and our registered sales are up by 50%. If activity continues at this rate, it won’t be long before we shift into a seller’s market where buyers will have to out-bid each other to secure the home.” Goslett recommends that buyers act fast and make the most of the current market conditions.

“After a record December in 2020 where BetterBond reported a 53% year-on-year increase in application volumes during what is usually one of the quietest periods of the year, we are still seeing a strong demand for bonds. Applications were up 22% for February for the year-to-date,” says Coetzee. “By keeping the repo rate steady at 3.5%, we expect more buyers who have the financial resources to apply for bonds. The current holding pattern is good news for homeowners, and for the continued consolidation of the housing property market.”

Last modified on Thursday, 08 April 2021 22:49

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