In the wake of the first Vat increase to hit SA since the dawn of the democracy, consumers are desperate for a little relief wherever they can find it.
Those home-owners servicing an unfixed interest rate home loan may be tempted to cash in on the immediate saving resulting from the lower interest rate, but bond originator BetterBond CEO Rudi Botha says there’s a smarter way to optimise your savings.
Using an example of a 20-year bond on a property valued at R912 000, Botha says a home-owner would save around R151 per month – a nominal saving.
Rather, he suggests that you leave your loan repayments at the level it was at before the interest rate cut as this could shave a whole year off your bond and a long-term saving of R73 000 over the duration of you home loan.
The interest rate cut has also brought marginal relief for first-time home-buyers who will now find it easier to qualify for a home loan.
Based on the example above, the gross monthly household income required to qualify for a home loan drops from R30 000 to R29 000.
BetterBond’s latest statistics indicate that the average bond being granted to first-time homebuyers is R715 000 and with the interest rate reduction, your monthly bond repayment amount would fall from R7 018 to R6 899, while the the monthly income required to qualify for a home loan would decrease from R24 000 to R23 000.
“This relief, coming in the wake of a significant drop in the inflation rate to 4% last month and the Moody’s decision to keep SA’s investment rating out of the “junk” zone, is bound to buoy consumer confidence, and will mitigate the effects of the Vat increase and the fuel tax increases,” he says.
With the South African economy expected to grow at a faster rate than initially anticipated, Botha says it’s likely that banks will have a greater appetite for approving more home loan applications over the next 18 months.
In the first-time home-buyer market, the average bond size has risen by 8,2%, higher than the 7,2% increase in the average property purchase price over the past year, while the average deposit put down by first-time homebuyers over the past 12 months fell from 12% to 11,2%.
“The average household income in this sector has jumped by 7,75%, to produce a substantial boost in affordability which has enabled many buyers to enter the market at a higher level. This is confirmed by a drop in the percentage of bonds granted in the R250 000 to R500 000 category, from 18,8% to 15,4%, and a corresponding increase in the percentage of bonds granted in the R500 000 to R1 million category, from 38,5% to 41,2%,” says Botha.