To the relief of all debt holders, the Monetary Policy Committee (MPC) announced today that interest rates will drop by 0.25%, bringing the repo rate to 8% and the prime lending rate to 11.5%.
“This cut will create much welcomed relief,” says Regional Director and CEO of RE/MAX of Southern Africa, Adrian Goslett. Looking at how this decision will affect the housing market overall, he notes that this should be a positive step forward for house price appreciation.
“Interest rates have remained high since May last year. This has put financial pressure on most households who have some form of debt. Apart from the Western Cape, house price growth has been stifled somewhat due to the lowered demand created by this financial pressure. This cut is likely to be the first of an interest rate cutting cycle, hopefully with another cut to be announced in November. Beyond that is difficult to predict,” says Goslett.
However, Goslett adds that the effect of this cut is usually felt 5-12 months later. “The cut will have some bearing on consumer sentiment now, but it is likely to only effect decision making further down the line once the market adjusts to the lower interest rates.”
The problem with waiting too long, according to Goslett, is that once the majority of potential buyers decide to invest, demand has already hit higher levels. “And when that happens, house prices go up,” he states.
“If interest rates come down again in November, that would mean that the repayment on the mortgage a buyer negotiates now will be at its highest level. It will almost surely decrease, leaving a buyer with more disposable income or allowing them to pay in more, shorten their loan term and reduce their total repayment on a home loan,” he notes.
His advice to real estate agents following this cut is to organize meetings between clients and a BetterBond consultant to help them with future planning. “This is also a good time to re-engage your sellers and fence-sitter buyers and investors so that they can make the most out of the conditions before they change,” he concludes.
