Repo Rate Remains Unchanged At 3.5%

The repo rate remains unchanged, which means the prime lending rate stays at 7%.

According to Regional Director and CEO of RE/MAX of Southern Africa, Adrian Goslett, “Keeping interest rates stable following these cuts will allow market activity to continue as it has been which will hopefully lead to further market recovery,” Goslett explains.

Goslett encourages buyers who are able to, to take advantage of low-interest rates. “Purchasing a home now means that buyers will benefit from the historically low-interest rates during the interest-heavy portion of their home loan. This will result in substantial savings for these bondholders,” Goslett explains. 

According to Goslett, the current interest rate means that bond repayments can be more financially feasible than monthly rent repayments. He does, however, caution new buyers to leave room in their budgets for the possibility of interest rates returning to their previous levels around 10%.

Bruce Swain, CEO of Leapfrog Property Group, agrees with now being the best time to enter the property market.

“This record-low interest rate means the cost of lending is such that more people can afford to enter the property market,” said Swain.

May not all be good news

Marcél du Toit, CEO of residential property platform Leadhome, explains…

“Leadhome’s data showed a clear shift in the interest rates granted by banks on home loans pre- and post-lockdown”, said Du Toit. Du Toit goes on to explain that in the first quarter of 2020, 54% of home loans granted were below the prime interest rate. After 1 June, this was turned on its head, with only 27% of home loans being given interest rates below prime – meaning nearly three-quarters of homebuyers in this period are paying prime or above.

“This means one of two things: either banks have fundamentally repriced the long-term risk of lending in South Africa, or they are taking advantage of the existing liquidity offered by the SARB to increase margins and take profits. Banks will always argue the former, but the evidence right now suggests the latter,” said Du Toit.

What type of market recovery can we expect?

Dr Andrew Golding, chief executive of the Pam Golding Property Group, said that we are more likely see a recovery between the following two scenarios…

A Nike ‘swoosh’ recovery, which refers to a sharp downturn as we have experienced, followed by a slow, gradual recovery, which would also require a recovery in economic activity. However, according to Golding, it is too early to pronounce on this, but there are tentative signs of recovery such as the Reserve Bank leading indicator, albeit coming off a very low base.

A ‘square root’ recovery, which would be a sharp downturn, followed by a sharp upturn and then a sustained period of stability.

Future Predictions

Looking ahead, the case for lower rates has been strengthened by the BER/FNB consumer confidence index remaining in negative territory, however, even if the Reserve Bank does not cut further, it appears likely that it will at least be able to keep rates at current lows for at least the balance of this year and well into next year.

Weaker oil prices coupled with relative rand stability means a petrol price cut in early-October is possible, further helping to dampen inflationary pressures and providing additional relief to consumers.