First-time house buyers flock to 100% bonds as interest rate, prices fall

With South Africa’s interest rate cut to the lowest level in almost 50 years, house prices showing a downward trend and financial institutions granting more 100% bonds, this may be the best ever opportunity for first-time buyers to purchase a home.

The South African Reserve Bank last week announced another 25-basis points cut in the repo rate, which took it down to a four-decade record low of 3.5%, and the prime commercial lending rate to 7%.

The low interest rate means a property of R1 million can be bought with a monthly bond repayment of less than R7 800 over 20 years.

If the buyer puts down a deposit of R150 000, it will cost them just over R6 000 to repay their bond.

This puts owning their own home in the reach of many people who are currently renting for about the same amount per month, or more.

There are also no transfer fees on properties worth R1 million or less, while with a 100% bond the buyer doesn’t have to put down a deposit as this would be covered by the bond.

South Africa’s prime rate since the 1950s. Source: TradingEconomics, SA Reserve Bank

This makes the current housing market, in which some property prices could see a decline of up to 20%, a very attractive proposition for first-time buyers, or even homeowners who want to upgrade to a bigger property.

It is no wonder then that banks and bond originators have seen an increase in applications for 100% bonds, and more of these bonds being approved, according to reports.

Absa’s managing executive of home loans, Geoff Lee, told Business Insider the bank has experienced more home loan applications “as well as an improvement in the ‘quality’ of the applicants in June” than in other months.

Absa as well as FNB said they have been approving more 100% bonds lately and if applicants have an impeccable credit record, it’s highly likely that their bond applications will be approved, according to Business Insider.

Bond originators SA Home Loans and ooba are also offering 100% bonds.

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