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How The Raised Interest Rate Affects You

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How The Raised Interest Rate Affects You

A 0,25 percent (25 bpts) increase in interest rates was announced by Reserve Bank Governor, Lesetja Kganyago, despite a lower economic growth forecast for at least the next year.

This increase will take the repo rate to 6,25% and the variable home loan rate to 9,75%.

For existing homeowners this will mean an increase of about R17 a month per R100 000 of their bond value – or R131 on a bond of R800 000, which is the current national average approved bond amount.

The difference for first-time buyers will be R101 per month on the average home loan of R614 000 that is currently being approved in this sector of the market. And prospective buyers are going to find it more difficult to qualify for home loans now, even if they are able to borrow at prime. The household income requirement for the average first-time loan will rise by some R350 a month now to around R19 420 – an increase that may be difficult to achieve at this time of year and in the current economic scenario.

At the same time, the banks will be looking for an increase in household disposable income (the net amount available to cover a home loan repayment after all other debt repayments and regular expenses have been covered) to ensure that homeowners have the leeway to be able to cope with higher loan repayments.

However, with food, medical and utility costs continuing to rise, and the instalments on cars, credit cards and other debts also increasing because of this increase in interest rates, this is going to be even more difficult for prospective buyers to achieve.

Consequently, we expect that buying activity in the real estate market may start to slow down somewhat now, especially among first-time buyers who are the most credit dependent.

In response to the latest Reserve Bank move, prospective homebuyers should now try to save up bigger deposits before entering the market, as this will not only make it easier for them to qualify for a loan, but lower their monthly home loan instalments.

In addition, they really should obtain pre-qualification for a home loan before they start looking for a property, so that they know what they can realistically afford, and be sure to apply for their loan through a reputable mortgage originator as this will give them a much better chance of securing an approval.

Source – Betterlife / S Rademeyer

 

 

Author Shaun Rademeyer - BetterLife Home Loans
Published 20 Nov 2015 / Views -
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