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Repo rate: will another cut make a difference?

It’s ‘definitely a great time to buy,’ says Carl Coetzee of Betterbond.

NOMPU SIZIBA: This week we’ll find out whether the Reserve Bank will cut the repo rate again. So far this year it has cut rates by 300 basis points, taking the repo rate to 3.5% and the prime rate to 7%. The question is, how much has this served to stimulate activity in the residential buy-and-sell property market, and could a further cut do any wonders?

Well, to discuss this matter further, I’m joined on the line by Carl Coetzee. He’s the CEO at Betterbond. Thank you so much for joining us, Carl. We know that the initial phase of the lockdown was very disruptive to the residential property market, but perhaps you can tell us about your observations around how things have evolved from that period to the third quarter.

CARL COETZEE: Hello, Nompu, yes. Certainly we’ve seen quite a dramatic increase in properties changing hands since the easing of lockdown. So from June/July onwards, we can say our volumes of customers applying for new homes, compared to the same period last year, are on average up 2% of what they were last year.

So what we can clearly see is the Reserve Bank’s efforts to lower the interest rates in the favour of consumers, and we can see a lot of consumers are taking that opportunity now to buy on the agreement.

NOMPU SIZIBA: But I suppose the key question is to what extent interest rates influence people’s decisions to buy, because, obviously, there will be a trigger that causes people to think, well, I want to go and buy a property – not necessarily, oh, the interest rates have changed, let me go and buy.

So to what extent do you think that a lower rate situation does aid in people buying?

CARL COETZEE: You are quite right. I get asked this question quite a bit. Is it a great time to buy at the moment? I think the answer is not simple – there are a lot of factors consumers are taking into account when they want to buy a new home. Are they financially stable, is (the property) where they want to live? And I think overall the sentiment of consumers plays a big role.

What I can tell you is that it’s a great time to buy. And I think more and more consumers are realising that and seeing the effect of: “My cost of borrowing money is so much lower and all of a sudden I can qualify for a bond and, therefore, buy a home.” There are many other reasons they need to consider, but we definitely are starting to see that effect of the lower interest rates, where consumers feel confident in borrowing money at the moment.

NOMPU SIZIBA: So, if the Reserve Bank does decide to cut rates by a further 25 basis points, which is what many economists are predicting, or even a bigger surprise of 50 basis points. Do you think that people should really, if they need to buy a property, consider buying one, given that?

CARL COETZEE:

We are waiting with bated breath for the rate announcement. I think a further rate drop will be good for the property sector.

That will just make it even cheaper for consumers to get credit and potentially buy a home. Again, I think there are a lot of facts to consider on where to buy, but definitely a great time to buy.

NOMPU SIZIBA: So, in terms of the application, you say that the applications have gone through the roof, and all of that. But what is the level of appetite on the banks’ part? We’ve heard that they’ve really suffered quite badly, job security is no longer a real thing, and it is quite risky to lend money to people right now. So what’s the response on their side?

CARL COETZEE: Yes, that’s interesting. Initially, when we started in lockdown, we were quite concerned – especially if you consider what happened in 2008, when the banks sort of pulled back quite a bit of lending. We didn’t see it this time round. Our approval rates on bonds are still very much the same as they were pre-lockdown, so the banks are still lending, and you can actually see all our deposit amounts, the loans to value that the banks are granting, are also increasing.

So definitely banks realise their responsibility in keeping the economy liquid, and they are still lending money, which is very, very fortunate at this time..

NOMPU SIZIBA: Of course our conversation is punctuated by the fact that the Reserve Bank is making a call on interest rates on Thursday, but, whether they cut or not, what’s the advice to people asking whether or not they should fix their interest rate when they buy a property, for predictability of their costs down the line?

CARL COETZEE: I think in South Africa the standard home loan is granted on the basis of a variable interest rate. Consumers do have an option to fix the rate. However, the bank won’t fix that interest rate for the full term of the bond period. So, from one bank to another, typically they’ll do it for five years and will fix it at a higher rate than the current rate. So the prime lending rate, plus potentially two basis points. That means you have to think clearly around what you expect to do for the next five years – is now a good time to fix it, or I’ll look at it later in the duration of the bond. So I certainly get all the facts, and make an informed decision in that regard.

NOMPU SIZIBA: Carl, always great talking to you. Thank you for the tips. That was Carl Coetzee, CEO at Betterbond.

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How can it be a great time to buy when fairly obviously rates will have to increase again : Unless you can lock a low rate in which does not happen in the land of comrades .

When a bond originator (like Betterbond..yes we know it’s all for marketing exposure) tells everyone “it’s a great time to buy”….

…makes me think of the Titanic’s captain instructing passengers “For heaven’s sake, where are you all rushing to? Get out of these silly life-rafts, and get back onto the sturdy ship again!”

Is it a good time to buy?
A home for your family? Yes!
A rental investment apartment? No!

End of comments.

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