Friday, 12 October 2007

Home Loan Interest Rate Increase - AGAIN!

I don't like starting Friday's off with bad news, so let's start off by saying;


Unfortunately that's not the reason for my article. It's with some regret that the home loan interest rate has increased again. We now have a home loan interest rate of 14%.

This is due to the reserve bank increasing the repo rate by 50 points but it really saddens me and I'll tell you why. Food prices are going up, petrol prices are going up and the reserve bank has the cheek to say that the reason they're increasing interest rates is because they want to curb consumer spending. Well you know what, why don't they worry about curbing our damn food prices instead worrying about how much people are spending on luxury items and every day goods...

Sort out the actual problem and let our interest rates be for a while.
DO you know that the interest rate increase has jumped from 10.5% in 2005 to 14% in 2007. That's big man, and it's making it very very difficult for entry level investors and buyers to get into the property market.

On the flip side though, for those of you using your home loan access facilities as your bank account, it now means you're earning an extra 0.5% interest on your money.

Come S.A. lets tackle the actually problems at hand first before making people pay more for MAJOR EXPENSES!


NoTiTo said...

Just how much longer will this upward trend carry on? This has definately had negative impact on affordability, house prices and the market. On the other hand we have the National Credit Act to deal with...

Here's an analysis of the property market untill 2nd quarter 2007

Anonymous said...

If you think about it, there is a bit of method in the madness, although I agree it is maybe not the best way to go about it. By forcing prices upwards (food, fuel, general cost of living) and making it more difficult to get loans with the new act, it forces people to scale down on their lifestyles to what they can afford.

You will most likely start seeing the Joneses move to a cheaper area, selling the luxury vehicles in exchange for something more practical and affordable, and buying from Checkers instead of from Woolworths Food. Great! Now we don't have to keep up with them anymore, so we also spend less.

I agree that in the short term many people might suffer, but it will only be because they put themselves in a precarious position by living above their means in the first place. Or not necessarily above their means, but right on the limit, which means with a fixed income their throats are cut the moment the interest rates go up. Bear in mind that the average middle-class citizen can do many things to cut down expenses before having to plead poverty, as mentioned above. They won't like it, as it means sacrificing some luxuries (which they actually couldn't afford in the first place). The long-term effects of what's happening now will be beneficial and educational.

Right now, buying primary residence property for middle-class entry-level buyers is virtually impossible and unaffordable (short of bumping off your rich aunt). But buyers must look wider than this, and still make sure to enter the market somehow. I advise buying something under R500k - not just because there are no transfer fees, but also because this is the only bracket that is readily affordable for most buyers. This means that this is the bracket where most growth will be experienced. My guess is that properties in excess of R1m will actually decrease in value quite dramatically over the next few years as sellers become desperate. The R700 - R900k bracket will remain very much stagnant.

What do you think?

- Jethro74

WizardMan said...

Jethro74, thanks fo your comments and so for taking so long to get back to you on this one.

You make some valid points and I agree with you fully.

I think it's going to force your average working class citizen to buy on the outskirts of the city, whether it be Jhb, Pretoria on Cape Town.

In Pretoria we already have a big expansion in the East and this includes areas such as Equestria where houses and duplexes are being built left right and centre for just under R500 000.00.

I don't think prices of houses will drop but I think housing booms like we had in the last couple of years won't happen for a while again.

Nice post by the way.