How to get the most out of low interest rates in South Africa

Property investors and first-time homebuyers are gleaming with joy amidst the five major repo rate cuts and a favourable buyer's market that South Africa is experiencing in 2020. Although the coronavirus epidemic had put a stop to most activities in the second quarter, sectors of the economy have begun to bounce back. The real estate market, being one of them, has shown tremendous growth, as evident in the increase in home loan applications.

How the 7% interest rate benefits potential buyers and existing homeowners

To recap, the country entered the new year with the interest rate sitting at a whopping 9.75%. With COVID-19 bringing life to a standstill, many economists feared that the interest rate could go as high as 15%, just like it did back in 2008 due to a worldwide financial crisis. Nevertheless, Moody's cut of the country's credit rating to junk, the falling dollar value, and other financial factors played its part in influencing the South African Reserve Bank's decision to drop the repo rate by a further 100 bps to 5.25% in March. The most recent cut sees the repo rate reach a 50-year low of 3.50%, bringing the current prime lending rate to just 7%.

Purchasing a new property has never been more enticing than it is right now. Instead of renting, first-time buyers are speeding up their future plans and making their purchases now. A driving force for this is the ability to fix interest rates while they are at record lows, along with the fear of increasing rates in the near future.

Even existing homeowners are spending lesser on their monthly bond instalments. For example, the monthly premium on a bond of R1,500,000 over 20 years was R14,228 in January. Today, with a 7% interest rate, the payable premium is R11,630.

Most homeowners who are still financially stable have chosen to continue paying the R14,228. This is a savvy move as they end up saving money in the long run. By keeping their bond repayments the same amount as they were when interest rates were at 9.75%, they can save about R623,760 on interest. This will also allow them to possibly shorten their loan by years at the current 7%.

According to FNB, some homeowners of pricier houses may have taken their properties off the market. This comes as a result of them being able to refinance their bonds at the historically low interest rate which will assist their finances.

Taking advantage of a buyer's market

The country's real estate industry is currently in a buyer's market. This means that there is an oversupply of houses available for purchase, with not enough buyers to scoop them up. In such cases, a property can take longer to sell and homeowners often have to reduce their asking prices to secure the sale. Buyers are now able to negotiate a final offer with higher confidence levels knowing that there are other properties available should the seller not budge.

The ease of no transfer duty

Not only have interest rates been slashed to the lowest they have been in five decades,
the threshold for a transfer-duty exemption has also been extended. From a R900,000 cut-off, it now includes properties worth up to R1,000,000. This ultimately means that the buyer will pay lesser taxes when making a purchase now than he would have at the beginning of 2020.

The exceptionally low interest rate, transfer duty exemption, and the surplus of properties has opened up the residential property market to buyers who previously did not qualify for bonds. 'Now' is undoubtedly the best opportunity that new buyers and existing homeowner have had for decades. Take this opportunity and purchase the home of your dreams now before it is too late. Contact Seeff Hillcrest & Kloof today and we will help you find the property that best suits your needs.