Author: Jade Davids
On Thursday, 23 July 2020, it was announced that the South African Reserve Bank’s Monetary Policy Committee had voted to lower the repo rate by a further 25 basis points. In total, the rate has been cut by 300 basis points this year, in order to assist consumers in dealing with the devastating impact of the Covid-19 pandemic and to assist in promoting growth and providing the country with much needed economic relief. The latest repo rate cut has brought the prime lending rate down to a low of 7%.
Although the Covid-19 pandemic has caused financial distress for many people within South Africa, the property market now offers more favorable buying conditions than it has in years, making it a good time for prospective home owners to look at their options, as housing has become more affordable.
We are currently in a buyer’s market with property prices declining and the reduced interest rate it has generated more of an interest in purchasing property, more specifically with first time home buyers. Foreign investors are also finding great value in South African property, with the weaker rand creating unbeatable opportunities for those with stronger currencies. Another appealing aspect for prospective home owners, is that the threshold for transfer duty was raised to R1 million earlier this year, meaning that properties selling for up to R1 million are no longer subject to transfer duty. Transfer duty, payable to SARS is not to be confused with transfer costs, payable to the conveyancer.
Lower interest rates have made it relatively easier for prospective buyers to qualify for mortgage loans and those looking to invest in property may qualify for a larger mortgage loan than they would have, prior to the nationwide lockdown.
Although financial institutions may be cautious about approving home loans due to many facing the risk of unemployment and the current state of the economy, they will continue to lend to those who meet the usual criteria of a good credit record and a steady income.
For existing home owners, their monthly bond repayments would have reduced significantly and these cost savings could offer additional support and assist home owners in paying off their debt in a shorter period than the initial term of their bond, saving them a large amount in interest.
For tenants, the latest cut may mean that it could become a more viable option to buy rather than to rent, as rent could now possibly be more expensive than repaying a mortgage bond.
Despite the health and economic challenges that our country is facing, for those who can afford to invest in property, now is definitely the time to consider doing so.