With a 30% drop in the interest rate since the beginning of the year – and signs that further repo rate cuts are likely in the next five months – there has never been a better time to get a bond. “Affordability has been a challenge for many South Africans wanting to invest in property or buy a first home. But with the interest rate at a historic low, it’s now possible for more South Africans to not only enter the property market, but to afford more than they would have been able to buy several months ago,” says Carl Coetzee, CEO of BetterBond
The marked increase in BetterBond
’s volume of bond applications – up about 50% year-on-year in July – is a direct result of this current favourable lending environment, says Coetzee. “There has been a significant shift in buyer confidence, at a time when there is widespread economic uncertainty. It’s good to see that the residential housing market is not only holding steady, but is creating opportunities for consumers to own an asset that will set them up for the future and ultimately provide financial freedom.”
This positive sentiment is borne out by the fact that first-home buyers account for a solid 70% of BetterBond
’s applications for the year to date, and the percentage of approvals for these buyers is also up to almost 50%. “Furthermore, 62% of the bonds granted in July were at 100% loan-to-value, which means that the bond granted covered the full purchase price. This is reflected in the 20% drop in the deposit amount required by first-home buyers,” adds Coetzee.
Much of the sales activity taking place is at the lower end of the market, as the record-low interest rates eliminate the affordability obstacle for many buyers. “We have seen an increase in the number of formal grants for homes between R500 000 and R1 million, with this category accounting for almost 45% of BetterBond
’s formal grants for July.” Given that the average house price for first-home buyers is around R900 000, it’s evident that first-home buyers make up a significant portion. An added incentive for buyers at this price point is that there is no transfer
duty payable for homes of up to R1 million.
Without diminishing the massive impact COVID-19 has had on the economy, it’s important also to acknowledge that the property sector is showing signs of being able to rebound significantly in the years to come, while assisting in the recovery of the economy, says Coetzee. “Based on the South African Reserve Bank’s cautious decision to reduce the repo rate by only 0,25% this month, and their forecasts into 2021 and 2022, we are expecting a sustained long-term, low interest rate environment that will bolster the property market in the coming months.”