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Interest rates drop to a record low as lockdown continues

21 May 2020 RE/MAX

Following a record-breaking streak of interest rates cuts in January, March and April, the Monetary Policy Committee (MPC) again announced some further relief for South Africans today by lowering the interest rate by 50 basis points. The repo rate therefore drops to 3.75%, leaving the prime lending rate at 7.25%

According to Regional Director and CEO of RE/MAX of Southern Africa, Adrian Goslett, this is fantastic news for the real estate industry. “Dropping interest rates allows struggling homeowners the opportunity to keep up with the instalments on their home loan. This means that fewer homes will be forced onto the market which lowers the possibly for a housing market crash where supply far outweighs demand and property values plummet,” Goslett explains.

He also hopes that these record-low interest rates will incentivise buyers to invest in real estate despite the current challenges. “Lower interest rates usually incentivise consumers to take on new debt. However, given our current economic outlook as a result of the lockdown, it is unlikely that many consumers will have the necessary means to make such a substantial investment at this time,” says Goslett.

Those who do, however, will need to be willing to purchase property without viewing the home in person unless current lockdown restrictions are amended. “Residential real estate services are currently classified to re-open at lockdown level 2. This impedes some of the benefit the interest rate cut may have had as it makes it more challenging for consumers to invest in the local property market. Until we reach a point where residential real estate services are allowed to operate once more, interest rate cuts will do little more than help existing homeowners keep up with their bond repayments,” states Goslett.

According to South Africa’s leading bond originator, BetterBond, at a 0.5% drop, homeowners will save the following on their home loan:

However, Goslett advises homeowners who can afford to do so, to keep paying the same amount as before the interest rate cuts. “Not only will this shorten the lending term and save a homeowner on interest charges, but it will also help homeowners keep room in their budget for if and when the interest rates rise again,” Goslett concludes.

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