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Harcourts Advantage | How Interest Rate affects Your Property

Many factors affect the value of a property and if you are a prospective homeowner or investor then it’s wise to do your research. Home loan interest rates have a direct influence on real estate prices but it’s equally important to know that changes in interest rates will also have an impact. Beyond the price of your home, the interest rate affects the availability of capital and the demand for investment which influences the dynamics of supply and demand for a property and, thus, the price of the property.
Additionally, interest rates affect returns on alternative investments where prices change to stay in line with intrinsic risks in real estate investments; and, subsequently, vary during periods of destabilisation in the credit markets.
Observing the rise and fall of interest rates is vital as it plays a substantial role in property cycles, but can be difficult to predict. When interest rates are low, obtaining home finance is more affordable and usually encourages first time home buyers to take out a home loan and enter the market. An increase in demand for property leads to an increase in property values. Inversely, a rise in interest rates sees consumers less willing to take out loans and subsequently, real estate dulls or declines. Generally, stronger economies/desirable locations and population trends will have higher interest rates but use lower rates as a way to increase investment and prevent a financial slow down.
On 14th April 2020, the South African Reserve Bank cut its repo rate by another 100 basis points, a second cut since March due to the COVID-19 pandemic, reaching a record low of 4.25% and resulting in a reduced prime rate of 7.75%. Although this decrease creates despairing side effects on the economy, with a predicted contraction in the SA economy, it does offer a big relief for indented home owners.
The 1% drop in repo rate means less pressure on residential housing market and relief for those applying for finance to buy a home, potentially paving the road to quick recovery once lockdown recedes. Investors and home owners with loans can expect a saving of up to R630 for every R1 million outstanding on their loans. You are encouraged to capitalise on this by choosing how to apply the savings wisely – paying off the debt as quickly as possible or using it to carry out overdue property maintenance put off previously.
For those on the fence about buying property, securing a home loan is now easier and monthly home loan repayments more affordable. The low interest rate opens door to people who have been wanting to purchase property in once unattainable locations.
The property market remains the most stable investment during this time of economic uncertainty, being a long-term investment. It should be considered tactfully to take advantage of the current financial opportunities.
Contact our sales team who will gladly assist you in determining your loan affordability and discuss possibilities for you as a first-time home buyer, looking to upgrade or as an investor seeking returns.
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