SA banks to tighten lending criteria in 2016: expert
Property owners across South Africa are tightening their belts as the upward trend in the prime lending rate looks set to continue.
This is according to Rawson Property Group, which noted that the latest ABSA Housing Review predicts mortgage interest rates to hit 10.25% by the end of 2016.
The repo rate climbed 50 basis points in the last half of 2015, in South Africa.
“Add to this consumer price inflation (forecast to increase from an average of 4.6% to 5.7% in 2016) and low economic growth thanks to a struggling global economy, it looks set to be a pretty tough year for property owners and buyers alike,” the property group said.
“Things aren’t as dire as they were after the global financial crisis back in 2007/2008,” said Tony Clarke, MD of the Rawson Property Group. “But finance affordability is definitely being affected by the economy, and it’s going to be a difficult year for a lot of property owners faced with increasing mortgage repayments. New buyers are also going to be thinking twice before committing to purchases.”
Clarke warned existing property owners and prospective buyers against using credit cards and store accounts to rack up more expenses. “The market has been flooded with credit opportunities,” he said.
He also warned that bond requirements will likely be more stringent in the foreseeable future, as banks need to ensure new mortgage-holders will be able to service their debt in spite of increasing costs.
“Home buyers need to make sure they have an excellent credit record, and should be conservative when applying for a new bond, not only to increase their likelihood of success, but also to reduce future financial strain,” he said.
For those who already find themselves nearing the limit of their financial capabilities, but have a mortgage that will almost certainly increase in the new year, Clarke suggests investigating the option of fixing your interest rate with your bank for the next two years.
“Fixed rates are typically higher than linked rates at the outset,” he said, “but they allow bond-holders to be able to accurately budget for the full fixed period. There is also the chance that the interest rates will climb beyond the fixed rate that you have negotiated, which could save you money at the end of the day.”
Other options to ease the strain include using your property to earn income. “Taking in a housemate or lodger can be a great way to bring in some extra cash,” said Clarke.
While the number of distressed sales will most likely increase as result of the economic climate, a general decline in property prices is not predicted for 2016. “Prices have been stabilising in 2015 after a period of excellent growth in the preceding years,” said Clarke, adding that the trend looks set to continue in the upcoming year.
More on property and banking in SA
Buying vs renting property in SA
Loading ...