No further interest rate relief for customers - ABSA..

Andree Laubscher
13 May 2010

WHAT IT MEANS FOR YOUR BOND REPAYMENTS

With mortgage interest rates at 5,5 percentage points below the peak of 15,5% in late 2008, mortgage repayments are currently 28,7% lower than 18 months ago, said Luthando Vutula, Managing Executive of Absa Home Loans.

"As a result, the monthly repayment on, for example, a R500 000 mortgage loan over a 20-year term is, at R4 825, a total of R1 944 lower compared with early December 2008 when the mortgage rate was 15,5%".

Vutula commented after the announcement that the repo rate, was left unchanged at a level of 6,5% by the SA Reserve Bank's Monetary Policy Committee (MPC).

He added: " Absa does not expect interest rates to be cut further in the current cycle, although some further job losses were evident in the first quarter of the year, which are bad news for the financial recovery of the household sector and eventually also for the upswing in the residential property market.
"No further cuts in interest rates will imply that the recovery in the economy, an expected gradual improvement in consumers' financial position, and possible further selective relaxations of banks' lending criteria will be the main factors driving the property market in the rest of the year and into 2011", he said.

Against the background of these developments and expectations, Vutula urges consumers and prospective home buyers to keep spending under control, while trying to reduce debt, especially with the prospect of steadily rising interest rates during the course of next year.
In view of this, Vutula advises home buyers to focus on properties that are affordable, based on their financial position and the possibility of interest rates being on a rising trend by this time next year.

"It is always prudent to factor in a higher level of interest rates when buying property and applying for mortgage finance, especially when rates are believed to be at a lower turning point at the time of buying", he concluded.