Repo rate - good news for homeowners, time to reduce debt
Wednesday's decision by the Monetary Policy Committee to keep the repo rate stable was generally anticipated by market commentators, says Dr Andrew Golding, CE of the Pam Golding Property group. Absa's reaction to the Reserve Bank's MPC decision is that it is good news for homeowners and those holding debts.
Image courtesy of jscreationzs / FreeDigitalPhotos.net
"From a residential property market perspective, Pam Golding Properties (PGP) continues to see a steady, albeit gradual improvement in the market in general," continues Golding. "Certainly from a group perspective, we are encouraged to report that at close to R1.5 billion, our sales turnover for the month of February 2013 was the highest achieved in any one month since February 2008. We have seen increased activity in all regions around South Africa, as well as via our offices in Africa and Seychelles.
"The market has normalised to some extent, with sellers demonstrating a greater appreciation of realistic pricing of properties amid signs that market sentiment generally has improved - in turn promoting a return to a natural flow of activity as people relocate or make changes in line with lifestyle choices or career requirements, or make sound investment acquisitions.
"We continue to see some areas experiencing stock shortages, which will ultimately boost prices, and find that buyers with access to finance or high cash equity continue to capitalise on favourable buying opportunities.
"Further positive signs include renewed interest in residential developments and long-term investment property purchases, as well as increasing interest in buy-to-let properties. The latter is resulting in pressure on the supply of stock which in turn has the effect of pushing up yields.
"We continue to see first time buyers entering the market, while upmarket sales in excess of R20 million are achieved as high net worth purchasers make acquisitions. We also note renewed activity among returning expatriates and international buyers.
"The resilience of South Africa's residential property market continues to demonstrate the potential for sound capital growth in the medium to long term, particularly given the prevailing low interest rate environment. As many investors will affirm, real wealth is created by property ownership," he concludes.
Reduce debt
The prolonged low interest rates offer an opportunity to reduce household debt levels, while this is likely to be the best time for consumers to fix their rates.
"Interest rates are currently at their lowest level in more than 30 years," says head of Absa retail banking, Arrie Rautenbach. The MPC left the repo rate unchanged at a level of 5%. As a result, Absa will maintain its prime interest rate at a level of 8.5%.
"Although interest rates are not expected to be cut further, rates are likely to remain at current levels in the rest of 2013, taking into account trends and prospects for the global and domestic economies, as well as consumer price inflation."
Rautenbach identified paying down debt as a number one financial priority to be considered for 2013, noting that with low mortgage rates there is an opportunity to take advantage of today's low mortgage rates to reduce mortgage principal faster.
"Deciding between a fixed or variable rate mortgage is also one of the most important decisions in finding a mortgage that is right for you."
He noted that balancing debt, savings and other financial goals is important to achieving what matters in the long term. A predictable mortgage payment at today's low interest rates can help homeowners to pay down a mortgage faster and minimise interest costs, which can keep broader financial goals on track.
Expecting no further stimulus for the economy as well as the housing market from the interest rate front, he advises consumers to continue to live within their means by keeping spending under control, while trying to reduce debt as rates.
Household credit balances to rise
Prospective homebuyers should focus on properties that are affordable, based on their financial position. "Household credit balances increased by about 10% in 2012, implying that the level of household debt increased further. Rising living costs, such as higher fuel and electricity prices, will put further pressure on consumers' finances," says Rautenbach.
"We encourage consumers to concentrate on using any excess income to consolidate existing debt and not to over commit on loans or credit that is beyond their means. If customers are experiencing difficulty with debt repayments, they should contact the bank without delay, " he concludes.
