Sales Spike Follows Interest Rate Increase

Despite gloomy predictions about property sales falling off after the interest rate increase in January, the move by the Reserve Bank to shore up the value of the rand actually seems to have brought about an increase in home buying activity, especially at the lower end of the market.

That’s the word from Berry Everitt, MD of the Chas Everitt International property group, who says: “We have been saying for some while that prospective buyers should not be sitting on the fence and trying to time a perfect entry into the market, but should make a purchase as soon as possible, and this interest rate increase seems to have prompted many to do just that.”

Writing in the Property Signposts newsletter, he says that the “big motivator”, is the fact that if rates rise any more, new buyers may not be able to qualify for the home loans they need or want.

“At a prime rate of 8,5%, the minimum household income needed to qualify for the average first-time buyer loan of R630 000 is around R18 000 a month. At a prime rate of 9%, it goes up to R19 000 a month, and with the costs of transport, electricity and food also continuing to rise, many prospective borrowers are also worried about having enough “disposable” income to satisfy a lender (in terms of the National Credit Act) that they can afford the monthly repayment on a bond.”

And on top of that, Everitt says, strong demand in the past few months has created shortages of homes for sale in popular areas that are driving prices up quite rapidly. “This also affects affordability and is causing many would-be homeowners to worry about being shut out of the market on that score as well – or having to settle for much lesser homes than they had in mind.”

An additional buying stimulus, he says, is the fact that rentals are rising - and not only because the interest rate increase has pushed up landlords’ repayments on their bonds. “Rentals traditionally get reviewed at the beginning of the year anyway, and this year landlords have been able to implement bigger increases than in the past few years because of an increasingly severe shortage of rental stock.”

Meanwhile, the January interest rate increase does not appear to have caused very much distress to existing owners or prompt many to sell, and Everitt says this is not really surprising either, as the new prime rate of 9% is still historically low for SA.

“However, relatively recent history has also shown that we should never be complacent about the course of interest rates, and our advice to those with any kind of debt at the moment is to do everything they can to reduce it as soon as possible, as further rate increases this year are quite likely.”