How to price rentals for shifting interest rates

Interest rates seem to have peaked, but they’re still putting significant pressure on the property market, as new industry stats show.

The share of new bonds registered per month has almost halved since 2021, putting pressure on lenders. Meanwhile, property portal Property24 shows only around 242,000 transactions  for the year so far – easily the lowest in the last 10 years, and a long way down from 376,000 last year.

Among the dwindling group of mortgage applicants, those getting hit hardest by high lending rates seem to be first-time buyers. According to bond lender ooba, the share of this cohort has fallen from 54% in Q3 2020 to 48% in Q3 2023. Meanwhile, lender Sentinel Homes says first-time buyers are also getting older on average. The average age for a first purchase has risen to between 38 and 40 as people put off buying a home for longer due to declining affordability.

Opportunities for agents

For now, high interest rates are deterring first-time buyers, encouraging tenants to rent for longer, and contributing to rising rental growth. After low or even negative rental growth during the pandemic, followed by inflation cutting into rental gains more recently, the last few quarters have been good news for the rental industry.

But interest rates are unlikely to remain this high for too much longer. Last month, Lesetja Kganyago, Governor of the South African Reserve Bank, said he expected one further rate rise this month, followed by cuts in late 2024. Once rates start to fall again, first-time buyers will return to the market – putting downward pressure on rental growth as demand eases.

While agents and landlords may be focused on raising rents to cover their rising costs, it could also make sense to keep one eye on the future. If they can deliver a high-quality rental experience, it could persuade more tenants that renting is a viable long-term lifestyle even when interest rates fall.

By providing convenient rental payments, instant self-service account management and maintenance reporting, PayProp-powered agents can give tenants the sort of seamless service-based tenure that homeownership can’t match.