The South African Reserve Bank Monetary Policy Committee announced its fourth interest rate cut of 2020 on Thursday (21 May), which is good news for property owners, or those who want to get onto the property ladder, says BetterBond chief executive officer, Carl Coetzee.
Coetzee said that it could be even better news for those who have been renting for a long time and are looking to become homeowners as it might become cheaper to buy than to rent.
“Add to the equation the fact that there’s no longer any transfer duty payable on property prices up to R1 million and the balance could tilt further in favour of buying versus renting.
“Of course, the purchase price is only the start of your expenses when owning property and is not the only consideration when calculating whether you have the disposable income to afford buying, or not.
“You also need to be able to afford rates and taxes, water and electricity, regular repairs and maintenance, and more.”
Coetzee said that, in general, your monthly home loan repayment should be around 30% of your gross monthly income, before tax and expenses.
“In this regard, record-low interest rates will therefore bring certain relief in terms of easing cash flow, and could be the key for many first-time home buyers to setting foot on the property ladder,” he said.
Below Coetzee outlined how much South Africans will save based on the 50-basis point rate cut, from 7.75% to 7.25% as well as the previous rate cuts earlier this year, taken over the typical bond term of 20 years.
| Bond amount | 7.75% | 7.25% | Monthly saving from 9.75% to 7.25% | Interest saving over 20 years |
|---|---|---|---|---|
| R250 000 | R2 052 | R1 976 | R395 | R94 884 |
| R500 000 | R4 105 | 3 952 | R791 | R189 769 |
| R750 000 | R6 157 | 5 928 | R1 186 | R284 653 |
| R1 000 000 | R8 209 | 7 904 | R1 581 | R379 538 |
| R1 250 000 | R10 262 | 9 880 | R1 976 | R474 423 |
| R1 500 000 | R12 314 | 11 856 | R2 372 | R569 307 |
| R2 000 000 | R16 419 | 15 808 | R3 162 | R759 076 |
| R3 000 000 | R24 628 | 23 711 | R4 745 | R1 138 614 |
| R4 000 000 | R32 838 | 31 615 | R6 326 | R1 518 153 |
| R5 000 000 | R41 047 | 39 519 | R7 907 | R1 897 690 |
Other benefits
Coetzee said that other beneficiaries of the rate cut are investors looking to expand their portfolio.
“As always, however, property must be viewed as a long-term investment – not something to be snapped up in haste, for short-term gains. Its reputation as a resilient asset class is based on a commitment over time,” he said.
“In addition to the three that preceded it, this latest rate cut will aid the economic recovery of our national economy as South Africa slowly starts to emerge from the lockdown.”
Coetzee said s functioning property sector can help to unlock income and liquidity for a whole host of role-players along the entire value chain.
These include, but are not limited to, banks and bond originators, property developers, real estate agents and conveyancing attorneys.
This will help stimulate economic activity and generate taxable income that could, in turn, help turn the wheels of the fiscus again, he said.
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