First-time buyers continue to benefit from lower interest rates
The South African Reserve Bank, at its last meeting in July, left the repo rate, the rate at which the central bank lends money to banks, at 3.5%. This is the lowest in over 50 years and is the result of consistent cuts from July 2019 that add up to 300 basis points.
While low interest rates aren’t always good news (just ask those looking to save), they definitely support a buyers market for potential homeowners.
For many people, the rate cuts meant an opportunity to move from the rental market to property despite the economic turmoil caused by a global pandemic, says Nondumiso Ncapai, Head of Product at Absa Home Loans.
“People began to see the gap between monthly rent payments and the likely repayment of bonds shrinking,” she says. “We saw an increase in requests after the initial bans were relaxed in 2020.”
As an example, Ncapai points out that the monthly repayments of a R 1 million bond borrowed at a prime rate over 20 years would now be almost R 2,000 less per month than before the rate cut by 300 basis points.
For those who managed to weather the pandemic storm and keep their monthly source of income, this is certainly tempting.
“What happened in the market was actually pretty interesting,” she says. “It has recovered in a way we didn’t expect.”
Ncapai’s department at Absa is responsible for developing products and financial solutions that meet clients’ needs, as well as developing new digital solutions that allow the bank’s clients to work with the Home Loan team in as effortlessly as possible To get in touch. One example is the online channel that now allows customers to apply for a home loan in less than 15 minutes, making the process simple and straightforward even for first-time buyers. Customers also receive a free uninterruptible power supply (UPS) to their new home when they register their home loan with Absa.
Advice for prospective property owners
For the buyers out there who still want to join the homeowners club, she gives some advice.
“A bank will always consider your affordability when assessing your credit needs. So it is very important to make sure that you are making the right decision for you and your situation, ”she says.
“You have to look at your budget and see what you can repay – it depends on buying where you can.”
She urges potential homeowners to plan ahead and save to pay a down payment on their home. If you want some bargaining power over the interest rate, a down payment goes a long way.
“The deposit also helps you save interest over time and shortens the life of the loan. You can see 10% of what you ask the bank to do [for],” She says.
It’s also important to remember all of the other costs associated with buying a property.
“There are costs for registering bonds, transfer costs including transfer fees. There is [also the] Costs that many forget – moving costs. Then there are tariffs, levies, insurance and maintenance, ”says Ncapai.
The decision whether to hold your bond at a floating base rate or to set your repayment rate for a certain period of time (always at a certain price as the bank has to calculate the risk taken) is a personal decision.
“You as a consumer have to decide if you want it at this point,” says Ncapai. “It is important to remember that at any point there will be a fee that you will have to pay if you wish to terminate the fixed rate contract earlier than agreed with the bank. It is therefore important to understand where the market is going, but also what you as a consumer expect from it. “
Get your house in order before you apply
Ncapai believes it is beneficial for potential homeowners to know what the bank will look for when evaluating a bond. When customers know what’s in the spotlight, they can prepare accordingly.
“Start looking at and understanding your income and expenses. The bank will also look at your credit exposure – try to limit the latter, ”she says.
“Use your free annual credit check to understand your own credit status and adjust it if necessary.”
“You can keep track of your expenses and schedule a down payment for the day you contact the bank to apply for a loan,” she says.
Presented by Absa Retail and Business Banking.
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