INTEREST RATES SLASHED TO HISTORICAL LOWS – BUT HOW WILL THIS IMPACT THE PROPERTY MARKET?

INTEREST RATES SLASHED TO HISTORICAL LOWS – BUT HOW WILL THIS IMPACT THE PROPERTY MARKET?

The South African Reserve Bank slashed the repo rate by one full percentage point to 4.25% — the latest financial intervention to alleviate pressure on consumers and keep the economy turning over.

The cut, the second in less than a month, brings the interest rate to the lowest point in history as global financial players cut lending rates to offset the damage caused by the Covid-19 pandemic. 

South Africa’s prime lending rate now stands at 7.75%

But what does this mean for the property market in South Africa?

Property values fluctuate with interest rates

When interest rates are low, it generally encourages prospective home buyers to enter the market. Since obtaining home finance is more affordable, those who may have been on the fence regarding the purchase of property are more likely to take up a home loan and buy real estate.

In turn, this increase in demand for property may lead to a rise in property values as stock is snapped up and homes become more difficult to obtain.

Of course, the inverse will also apply: when interest rates are high, consumers may be more unwilling to take up the mortgage finance they need in order to enter the property market. With fewer people looking to buy, the value of real estate may stagnate or decline.

Interest rates are a major factor in property cycles, and for that reason it’s important for potential home buyers to keep an eye on where interest rates are and where they may be heading. 

While trying to predict which way interest rates will move is far from an exact science, there are strategies consumers can use.

In general, stronger economies tend to push interest rates upwards, with lower rates used as a way to increase investment and eliminate a financial slowdown. In this way, staying apprised of general economic news and trends can help you determine whether interest rates are likely to rise or fall.

However, it’s important to remember that interest rates are not the only factor that helps to determine the cost and difficulty of purchasing real estate.

Everything from location to population trends can also impact home prices and availability.

So, in summary:

  • Home loans with a lower interest rate may see a trend of potential buyers increasing.
  • In a lower interest rate environment, the prices for properties on the market may increase, providing a positive market for those wishing to sell their homes.
  • A lower interest rate generally encourages spending, placing money back into circulation within the economy.
  • On April 19, 2020
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