Johannesburg - House buyers now applying for mortgage bonds
for residential property are now paying higher interest rates on their loans,
despite the prime interest rate having remained unchanged at 9% over the past
nine months.
In recent months there has been a significant decline in the
interest-rate concessions banks are prepared to make, said Rudi Botha, chief
executive of mortgage originator Betterbond.
What this amounts to is that interest rates on home loans
are already higher for many consumers, even though the South African Reserve
Bank has not increased its rate.
Botha said that in the property boom banks had been prepared
to make concessions of prime minus two percentage points to good clients, and
the average interest rate was prime minus 1.4 percentage points. The current
average is prime plus 0.2 percentage points.
One should however keep in mind
that the interest rate during the boom period up to the middle of 2006 (at
10.5%) was higher than the current 9%.
He said the banks were not to blame; it was a global
economic reality. What is more, he expects that in the near future banks will
raise the cost of home loans even more as a result of pressure on their margins
and the new capital ratio requirements prescribed by Basel III.
In illustration, he said, a client who six months ago
qualified for a rate of prime minus 0.8 percentage points will probably now
qualify for prime minus 0.3 percentage points, and next year possibly for prime
plus two percentage points.
For this reason he encouraged prospective homebuyers to buy
now rather than wait. Half a percentage point better on the interest rate of a
mortgage bond today is the equivalent of about a 5% discount on a house in
future.
He said, further, that if a homebuyer today gets a mortgage
loan of R750 000 at a rate of 9%, the monthly instalment will be R6 750, and
the total interest over 20 years R870 000. The monthly payment for prospective
buyers who wait until interest rates rise 0.5 percentage points will climb to
R6 990 and the total interest to R928 000.
For those who already have a mortgage bond and those buying
now, he reckoned it would be wise to fix the interest rate on their bonds for
three to five years, especially first-time buyers with tight budgets.
The premiums levied on fixed-rate loans vary from bank to
bank and from week to week. Botha said it can be as low as prime plus 1.25
percentage points if the rate is fixed for 60 months, but even lower if fixed
for 24 to 36 months.