The economy to still remain under pressure

The latest announcement to have the repo rate unchanged is a disappointment and does not help an already heavily-indebted household sector, still struggling with debt repayments. A lower mortgage rate would have further improved the affordability of housing over a wide front, says Luthando Vutula, Managing Executive of Absa Home Loans.

Vutula said that “a further cut in interest rates would have implied that mortgage repayments would have dropped by 26,3% since December last year when the mortgage rate was still 15,5%.

The monthly repayment on a R500 000 mortgage loan over a 20-year term would have dropped by another R169 if there was a 50 basis interest rate cut. This implies a cumulative monthly saving of R1 778 on a R500 000 mortgage loan since December last year”.

His comment comes after the key monetary policy interest rate – the repo rate remained unchanged at a level of 7,50%.

Vutula says, the economy is expected to remain under a lot of pressure until late this year, which will continue to impact employment, household income and the property market.

In view of these developments he encourages consumers to keep expenses under control and look for properties that are affordable, taking account of their financial position.

Marcel de Klerk, Managing Executive of Absa Vehicle and Asset Finance says: “We were hoping for another 50 basis points to bring further relief to customers.

We don’t expect the vehicle market to rebound until 2010 as sales are based on customer confidence, and this is seriously lacking at the moment.

“Affordability is still an issue and the main reason customers have fallen into arrears, especially in the lower income groups, says de Klerk.

A further reduction of 50 basis points on vehicle finance of R150 000 over 60 month term, would have brought relief of R37 per month. Since December 2008, the relief would have been R384 per month.

De Klerk advises also advises customers never to cancel insurance on vehicles, rather re-negotiate better options as accidents and unforeseen circumstances can have detrimental effects on your pocket should customers not have insurance back-up.

He offers the following tips to consumers wanting to purchase vehicles:

· Look at fuel efficiency and total cost of maintaining vehicle;

· Be careful and understand finance obligations i.e. term, end of term obligations;

· You should not buy vehicle at terms longer than 60 months even though it looks more attractive in repayment terms;

· Look at affordability: if term should be extended to 72 months and residual value options are included to afford vehicle – this surely is a sign that the vehicle is too expensive for you;

· Good guideline is to use +-20% of disposable income as monthly payment on your vehicle;

· With sales low, high stock of dealers there is real opportunity to negotiate best deal with dealer;

· Use value-added products to reduce your risk i.e. comprehensive insurance, credit life;

· When buying used vehicle ensure you determine what warranties are applicable;

· Paying a deposit when purchasing a vehicle is to your advantage when and if you want to replace or “get out” of vehicle.