Unchanged repo rate provides stability for home buyers with mortgages

With all indications that the Monetary Policy Committee would retain the status quo, it was no surprise that the decision was taken to leave the repo rate unchanged at this month’s (May 2021) meeting. “This provides stability to the market in respect of aspirant and existing home owners with mortgages.

However, while economists seem to agree that the next move in the interest rate would be a hike, there is no agreement on the likely timing of the first increase in rates. The Reserve Bank Governor has indicated that the Bank will maintain its current accommodative monetary policy stance to support the economic recovery as long as inflationary pressures remain contained.

Economists’ expectations range from the first hike possibly occurring in late 2021 to rates remaining unchanged throughout next year (2022) with the first hike in early 2023. Given the uncertainty surrounding the likely path of the pandemic and its likely impact on the global economy, the lack of agreement on the timing of the anticipated interest rate hike is understandable.

“However, the median forecast from the Reuters’ survey points to the first hike of 25 basis points in the first quarter of 2022, followed by a second similarly modest hike in the third quarter.

While the rand has strengthened since the previous MPC meeting in March – gaining 6% against the dollar, according to FNB, bringing it back to pre-pandemic levels – and with domestic inflation remaining comfortably within the Bank’s target range, there are concerns about the inflation outlook in the longer term.

“Inflation is expected to pick up in the next few months, rising above the mid-point of the target range, but still within the target range, as a result of base effects as well as higher administered prices, such as a double-digit increase in electricity prices, and soaring global commodity prices, which could trigger second-round inflationary pressures.

The prospect of slightly higher than expected inflation and a marginally stronger than expected economic recovery has prompted some economists to shift their forecasts of the first hike in interest rates from early-2022 to late-2021.

Residential property market remains active

Positively, while the impact of the aggressive interest rate cuts last year (2020) on the property market are gradually dissipating, the residential property market remains active, with the rate at which banks are lending to new homeowners continuing to improve. According to ooba, the average weighted concession below prime rate eased to -0.12% in April (2021), the best rate recorded since August 2020. This compares favourably to a rate of 0.2% above prime in May 2020 at the height of the global pandemic.

Furthermore, the approval rate for pre-qualified buyers remains relatively stable at 89.1% in April, while the rate for non-qualified buyers has drifted lower to 77.2%, underlining the importance for buyers to take the time to pre-qualify prior to making offers to purchase.

We are seeing sustained good market conditions experienced across all regions in the country. According to the Pam Golding Residential Property Index (all statistics below), national house price inflation continues to rebound with no sign of losing momentum, rising from a low of 2.4% in March 2019 to 4.7% in April this year. And, despite an expected drop in real price growth in April to +0.3% (from +1.4% in March) – based on a temporary spike in inflation – forecasts of subdued price pressures for the balance of the year suggest real growth in house prices will remain positive for a second consecutive year. It is noteworthy that growth in prices in the lower price band (below R1 million), continued to accelerate by +7.1% in April.

Both the Western Cape (+5.2%), which has now regained its position as the top performing regional housing market, and Gauteng (+4.9%) continued to rebound in April, while KwaZulu-Natal (+4.2%) – which initially led the recovery – lost some momentum. KZN continues to outperform relative to Gauteng in both the top (above R2 million) and lower (below R1 million) price bands, while Gauteng retains its lead relative to KZN n the mid-price band (R1 million – R2 million).”

Writer : Gaye de Villiers Private Property
Andrew Golding of Pam Golding