A SHORT REPRIEVE FOR CONSUMERS

Reserve Bank Governor Lesetja Kganyago announced today that the Monetary Policy Committee had decided to leave interest rates unchanged for now, following the news that the consumer inflation rate had slowed for a second consecutive month in April to 6,2%.

This means that the repo rate – which is the rate at which the Reserve Bank lends to commercial banks – will remain at 7% for at least another two months, and that the prime rate and variable home loan rate will remain at 10,5%. “At the moment the concern which is weighing most heavily on SA is our low economic growth rate,” says Shaun Rademeyer, CEO of BetterLife Home Loans, SA’s biggest mortgage originator. “This is projected to reach less than 1% this year and will be a major factor in the decisions that the ratings agencies make next month about the country’s investment status.”

“What these agencies want to see is that SA can deliver on its plans to increase growth and boost employment, as outlined by Finance Minister Pravin Gordhan in his Budget speech in February and ongoing presentations to international investors.” “And a rate increase at this time would have made it extremely difficult to do this – while not necessarily having any major limiting effect on inflation. What is more, the latest unemployment figures from StatsSA clearly illustrate the dangers of putting inflation targeting ahead of economic growth.” In any case, he says, this week’s decision is good news for both homeowners and homebuyers.

“It means that the monthly repayment on a home loan of R800 000 obtained at an interest rate of 10,5% will remain at just under R8000 – and that will give existing homeowners some comfort.” “It also means that there will be no increase for now in car instalments, credit and store card repayments or other debt commitments, which will give prospective buyers a little more time to qualify for a home loan at their current income levels.” Nevertheless, he notes, as the banks are already following very strict credit granting criteria, they should be sure to apply for their loans through a reputable mortgage originator like BetterLife Home Loans, which is prepared to motivate and caretake individual applications, and can advise them as to the most suitable home loan options for their individual financial circumstances.

“The advantage in following this course is evident from the fact that we are currently able to obtain approval for 75% of the home loan applications we submit, as opposed to a success rate of less than 40% in the open market,” he says.