One of the questions which he is most frequently asked by property buyers these days, says Tony Clarke, MD of Rawson Properties, is
'Should I go for a fixed interest rate or should I allow my bond to float?'
Clarke said that many people, remembering only too well the 7,5% interest rate rises over a short two month period in mid-1998 '“ after which they rose still further '“ are still concerned that an unforeseen interest rate hike could recur in SA.
Is this really a possibility?
'Any really serious rise in the interest rates now,' he said, 'does seem highly unlikely and SARB (the SA Reserve Bank) now follows a policy of protecting the rand both internally and externally'
SARB, he said, seem to be following a policy of raising interest rates slightly before this becomes absolutely necessary, in order to avoid a single large rate hike at any given time. The average homebuyer is, as the government intends, therefore in a fairly secure position.
'Having said that, however, it is also true that our analyses of Rawson Properties buyers indicate that many are extending their credit to dangerous levels. They have often been allowed by the banks to push the boundaries on their bond repayments'
With the new Credit Act likely to make bond approvals more difficult and with a further oil price rise and a 0,5% (or greater) interest rate hike now a possibility, homebuyers, said Clarke, must reduce their 'unnecessary' expenditure, particularly credit card and store accounts, HP and other debts. These, he said, were often signed up not because they were needed but because the financial institutions have flooded the market with credit opportunities.
Homebuyers, added Clarke, must be conservative about the size of their bonds, resisting the temptation to extend themselves to their limits.
'The impact of an interest rate rise is sometimes not appreciated by homebuyers,' he said. 'Take, for example, a buyer with a R800 000 bond at 12,5%. Such a person is currently paying R9 089 per month. A 1% interest rate rise would increase this to R9 656; a 2% rise would increase it to R10 240. Increases of this size could be a serious problem to someone who is already overextended'
Clarke said that the more stringent bond approval process, which will apply after June will possibly not reduce the number of homebuyers, but it will, he said, force them to lower their aspirations and buy more sensibly than in the past.
