Cut won't help house prices

Johannesburg - There is no doubt that lower interest rates will bring some relief to homeowners and borrowers in general, but that the property market could see a recovery soon is not so clear, said Piet van der Walt, MD of Sanlam Home Solutions on Thursday.

Van der Walt was reacting to Reserve Bank governor Tito Mboweni's announcement that the repo rate - the rate at which the Reserve Bank lends money to banks - had been reduced by a further 100 basis points to 7.5%.

This brings the prime lending rate to 11%, 4.5% lower than it was in December 2008.

For the average middle-market home-buyer - a R700 000 mortgage according to Absa's House Price Index - this means a reduction of close to R2 300 on bond repayments since December last year.

"Although this means more money in their pockets, household incomes are still under pressure from rising fuel and food prices and the burden of past interest-rate hikes," said Van der Walt.

The latest rates cut follows growth data on Tuesday which showed that the South African economy had suffered a sharp 6.4% contraction in the first three months of 2009, confirming the first recession in 17 years.

"In view of the contracting economy and many households still under financial strain, any recovery in the housing market could still be some way off as interest-rate cuts will not altogether solve confidence and affordability issues," said Van der Walt.

On affordability, Van der Walt said that the continued interest-rate cuts, coupled with declining house prices, had paved the way for buyers to enter the market, albeit cautiously.

He suggested that buyers see a qualified financial adviser to help them work the purchase of a home, probably their biggest asset, into their overall financial plan.

He added that buyers should shop around and look for bargains before taking the big step because sellers are increasingly having to adjust their asking prices downward.

- I-Net Bridge