The Monetary Policy Committee (MPC) of the Bank of Namibia has decided to further increase the Repo rate by 50 basis points, in the meeting held on 15 June 2022. Economic analysts have also predicted that the Bank of Namibia will announce two more rate hikes before year end.
The Bank of Namibia cut the repo rate by 250 basis points 2 years ago following the global pandemic and most industry experts predict the repo rate will return to its pre-pandemic levels by 2023.
So, one might ask, what is the “Repo-rate” and how does it affect me?
The repo rate is the rate at which banks borrow Namibian dollars from the Bank of Namibia.
The repo rates feed into the Prime rate, which ideally is the benchmark rate at which private banks lend out to the public.
Thus, if the repo rate goes up that means the prime rate will also increase. Existing homeowners will have an increase on their bond installments.
And aspiring homeowners who have obtained pre-approvals will need to check in with their banks to ensure they STILL qualify for the initial amount they were approved for.
Higher rates can equate to a lesser purchase price depending on your financial profile.
In a nutshell rising repo-rates affect affordability. So, homeowners, please plan and make room in your budgets to afford slightly higher monthly bond installments going forward.
Make sure that you have enough disposable income left after your bond repayment – factoring in the rising costs of living such as fuel and food prices.
House prices will also start to rise if they haven’t already, as building costs go up due to rising inflation. I think the newcomers to the property market need to hurry and consider buying now, even if it means their first home is smaller and cheaper than they originally planned. The rising cost of living means that most households have less disposable income, which is one of the key factors that banks look at when considering a home loan application. And as I mentioned, we expect 2 more rate increases this year. So it is very likely that affordability will decline even further and that it will become progressively more difficult for prospective buyers to qualify for home loans.
It would be a good idea to look seriously at buying smaller, less expensive properties now or purchase a property with a flat for some rental income to help with the bills. To ensure that you have some financial leeway to cope with the effects of increasing interest rates over the next 12 to 18 months.
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