Why the reserve bank governor wants to meet with the major banks.
An interesting trend is emerging that has sparked the interest of the South African Reserve Bank (SARB) governor, Tito Mboweni.
The Reserve Bank has been rapidly cutting interest rates to stimulate economic growth and kick start the local property market.
Rates down by 3.5% since December 08. And, we can expect another rate cut, of either 0.5% or 1%, later this week.
But, the governor has noticed that the full benefit of these cuts are not reaching the consumer and called for a meeting with the country’s main banks.
The repo rate (8.5%) is the interest rate at which Banks borrow money from the reserve.
The prime rate (12%) is the rate at which Banks lend money to you and me, the consumer.
When, applying for a home loan, mortgage lenders will usually offer you an interest rate of about 1% or 2% below prime.
12 to 24 months ago when the property market was still booming, and banks were eagerly lending, interest rate concessions (discounts) of about -2%were not uncommon.
Filling Their Pockets
But, a trend among the banks recently has been to cut back on these rate discounts. Home Loans are now being offered with rates of between -0.5% and -1% below prime.
This increase in the spread between the repo and prime rates could delay the recovery of property prices. And, the positive effects of this meeting may only be felt by consumers in the long term.
First Secure the Finance
Meanwhile, the priority among most buyers is whether they are even able to qualify for the home loan.
With a minimum deposit of 10% needed on most purchases, our focus is to firstly secure the maximum loan amount for our clients, and then negotiate the most competitive interest rate on that loan amount.
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