Home owners urged to make the most of unchanged repo rate
Category Advice
On Thursday the SARB Monetary Policy Committee elected not to raise the repo rate which will remain unchanged at 5.5% until the next meeting on the 17th of July.
While it seems unlikely that the repo rate will be increased again this year, “The committee continues to hold the view that we are in a rising interest rate cycle, and interest rates will have to be normalised in due course. We embarked on this process with our first move in January 2014. At this stage the pace and timing of normalisation in the advanced economies appears to have been pushed out further and may be more moderate than previously believed. We are also aware that this can change very quickly”.
Writing for Business Day Bronwyn Nortje believes “the big question is by how much the Bank will choose to raise rates when it begins doing so. At the moment it seems the market has priced in about 100 basis points over the next year”.
“While we welcome the Bank’s decision to leave the repo rate as is for the moment, Leapfrog’s message remains the same; we’d like to urge home owners to pay as much into their bonds as possible now, before the repo rate increases again - thereby putting more pressure on households”, says Bruce Swain, MD of Leapfrog Property Group.
This advice is in line with statements made by FNB Household and Property Sector Strategist, John Loos who reiterated that “The South African Household Sector as a group remains poorly-prepared for a normal interest rate hiking cycle, or any other significant economic shocks”.
Loos bases this belief in part on the fact that Household Debt-to-Disposable Income Ratio stands at 74.3% and, even more disconcertingly, that the South Africa’s Household Sector Net Savings Rate is currently at zero.
“While we advise current home owners to pay into their bonds now we also advise prospective home owners to take a rate hiking cycle into account when budgeting to buy a property, in order to avoid hardships later on. What is certain is that there will be a hike at some point so it’s best to make the most of the current reprieve”, says Swain.
Author: Leapfrog Property Group
