On March 25, the Reserve Bank governor, Gill Marcus, stated that there will be an interest rate cut of 50 basis points.
This also means that the prime rate will now drop to 10 percent, which will bring relief to many South Africans in debt. Personally it was great news for me as it means my Home Loan repayments decrease while my rental income remains strong.
Many people have been complaining that this rate cut should have happened last year already, but I’m just happy it’s come to pass. Obviously this is good news for the economy, and will help retailers as consumers should now have a bit more money to spend.
The only slight downside is for people who are trying to save money, as they would be negatively affected by the cut.
BUT, savers should start investing!
I read an article this morning claiming that “It’s a good time to be buying Property”. The article went on to show that the average property price is steadily dropping slightly, and that it is a good time to swoop in and purchase some real estate. All very true, but they did fail to mention a few things.
I bought my first investment property when I was 24 years old. It is a small two-bedroom Townhouse in a new, secure complex. The whole process of buying the unit, and acquiring a loan, was relatively simple with no hiccups or delays.
These days it’s a slightly different story; banks are reluctant to give young people loans with their parents standing surety.
Up until about 7 years ago there was a saying that “Banks love property” meaning that as soon as you own one piece of real estate, it would be quite simple to buy more property using your initial one as collateral.
However, at the moment banks are much more interested in Cash Flow; they want to see how much income is flowing into you account each month. A perfect example of this is a friend of mine who is a farmer. His land has an estimated value of around R8 million, but when he applied for a loan to buy a small townhouse the banks didn’t even recognize any of his property in the application; they wanted to see is salary.
So yes, it is a good time to be buying property, but there is a lot of research to do first. Shop around to see who will give you the best deal on your loan. Also remember that electricity costs are unbelievably exorbitant at the moment, and is a big expense to bear in mind if buying a house to rent out. (I.e. make sure the electricity cost is built into the rental fee, or ensure that the tenants pay for their own electricity by installing a meter).
When purchasing property always try to pay more on your home loan than the minimum instalment. To give an illustration of the importance of this:
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