The reluctance of banks to provide loans at less than the prime interest rates means that home loans are already costing buyers more.
Banks have stopped providing interest rate concessions on new loans and in essence this means that people are paying more for their bonds than in previous years according to Rudi Botha, chief executive of bond originator, Betterbond.
He says this means that home loan rates have effectively started to rise. He says indications are that the South African Reserve Bank will soon hike its basic lending rate to banks, effectively pushing up the prime rate for borrowers.
He says that banks are likely to increase the cost of home loans because of the pressure on their own margins coupled with new capital ratio requirements imposed through Basel III
Botha says that as a result, his company is urging prospective buyers not to delay buying a home as they can still secure a reasonable interest rate at prices that are particularly low and this will mean significant savings over the life of the loan.
By way of example, Botha says that a home loan of R750k at 9 percent interest will mean repayments of R6 750 a month and the total interest over the 20-year term will amount to R870k. If the rate goes up by 0.5 percent the repayment will rise to R6 990 and the total interest will climb to R928k.
He suggests that people with existing home loans should approach their banks now before the interest rates go up – and negotiate a fixed interest rate with the bank for the next three to five years.
Botha concedes that bank rates on fixed term loans a fluctuating at the moment but that some banks are prepared to fix a rate at 1.25 percent above prime for a maximum of 60 months.
He says the advantage of a fixed-rate loan is that homeowners can budget with certainty even when interest rates are rising and this is particularly important for first-time buyers or for families with lower incomes.
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