The South African Reserve Bank's interest rate has been left unchanged.
Category News
The press and other reports that followed on the South African Reserve Bank’s Monetary Policy Committee’s recent decision to leave interest rates unchanged (ensuring that the prime bank rate stays at 10%) has had a beneficial side effect, says Rowan Alexander, Director of Alexander Swart Property: it has made many property bond holders – and potential bond applicants – once again aware that, although this time there has been no change in the rate, such changes are always possible and must be taken into account.
“In an economic environment where the rand is weak, fuel and other prices continue to rise and severe inflation could become a serious reality, caution in financial planning is absolutely essential ,” said Alexander. “A conservative approach by consumers to budgeting is called for.”
Alexander added that he was pleased to be able to report that many Alexander Swart Property agents are finding that their clients are now far more aware of the economic situation and the possible dangers ahead than they were five to ten years ago. Because of this, he said, they are often ready to take advice on their financial situations.
What advice can a conscientious agent give to a home buyer?
“The most important point to stress,” said Alexander, “is that the buyer must be restrained and must buy well within his means. He must never rely on future income or salary increases which may or may not materialise – and he must accept that interest rates quite probably will rise again as they have done so often in the past. He should, therefore, endeavour to pay slightly above the required amount each month and possibly save elsewhere as well.”
Just how significant even a 1% rise in the rates can be, said Alexander, is shown by his calculation that on a R1 million bond issued at 10% over the usual 20 year period, the 1% increase will make the bond holder pay an extra R161,000 i.e. 16% of the total capital.
“On a bond issued at a 10% rate, the bond holder ends up paying back 2,3 times the original sum. Even allowing for the fact that in real terms inflation will reduce this amount to possibly more manageable proportions, the bond holder pays heavily for the privilege of having a loan. Any steps by which he can speed up his repayment should, therefore, be seriously considered.”
In previous statements Alexander has more than once cautioned millennials and today’s young high flyers against splashing out on frivolous expenditure, for example expensive cars, holidays and entertainment.
“We still have far too many potential middle class home owners living on maximum credit and renting rather than buying their homes,” he said.
Author: Independent Author
