Property experts and economists have predicted a 0.5% increase at the end of this month, which means homeowners must prepare to pay a little extra on their bonds.
Just how much more you will pay depends on the value of your home loan.
The current repo rate is 6.25%, which means the prime lending rate is sitting at 9.75%.
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If the interest rate is hiked by the predicted 0.5% to reach 10.25%, then your repayments this month – if your loan period is 20 years – will increase by the following amounts:
- R1 million bond – R331
- R1.5 million bond – R497
- R2 million bond – R663
- R2.5million bond – R828
- R3 million bond – R993
- R3.5 million bond – R1 160
- R4 million bond – R1 325
There’s no doubt that bond repayments have become a struggle for some homeowners, says Leondard Kondowe, finance manager for the Rawson Property Group.
“As bond originators, we’re sometimes able to advise struggling bondholders on ways to restructure their personal finances to free up capital for their bond. When this isn’t possible, or the results aren’t significant enough, however, it’s essential that bondholders approach their lender directly, and as quickly as possible.”
Although lenders are typically very willing to offer compromises, he urges bondholders not to mistake this helpful attitude for general leniency.
“It’s absolutely critical that you honour the new agreements you make with your lenders. Not doing so risks adversely impacting your credit rating, and could see your new agreement revoked entirely.”
Between the rising cost of things like credit card debt and vehicle finance, the increasing expense of fuel and groceries, and poor salary growth, it’s no surprise that South Africans are feeling the pinch. This hasn’t only affected new bond applicants, but also those paying off existing home loans, Kondowe says.
For example, someone paying R7 675 per month on a R1m home loan mid-2020, would now be paying R9 390 per month. That’s almost R2 000 extra to find in the budget, every month.
Given that many homeowners will be paying more on their bonds, BetterBond expects to see lower transaction volumes and a softening of house prices, says chief executive Carl Coetzee.
“However, this will be segmented across the market, with the lower end relying heavily on housing finance. The good news is banks have a healthy appetite to lend and we are seeing that BetterBond’s approval ratio for the 12 months ending October has increased by 2.3% year-on-year, and by almost 1.5% year-on-year for first time buyers.
“Affordability should always be a consideration when buying a home, irrespective of where we are in the rates cycle. The current upward trajectory is a reminder to homeowners and prospective buyers to budget wisely and consider household expenses when looking at property prices.”
Barbara Larney of RE/MAX Wine and Whales explains that rising interest rates make buying or selling a home more difficult, while decreasing interest rates make buying and selling easier. As interest rates increase, affordability decreases.
“But, if the economy grows fast enough, rising interest rates will not greatly affect property value and housing prices. There's always a light at the end of the tunnel in real estate. It's just a matter of finding that opportunity in the current market. For example, even if the economic uncertainty causes the housing market to cool, this could potentially open opportunities to purchase properties at reduced prices
“Buying a home as interest rates are rising is nothing to fear. From a historical standpoint, the prime rate was 25% at the start of 1994 and decreased to 7% at the end of 2020. Now, at 9.75%, the rate is low. And still cheaper than historical comparisons,” says Larney.
The bigger concern, states RE/MAX chief executive Adrian Goslett, is that if economist predictions of South Africa’s GDP shrinking slightly in 2023 come true, this will impact unemployment rates and put greater pressure on tax-paying citizens above and beyond the increasing interest rates.
“While interest rates are still manageable at this point in time, I recommend that all homeowners make sure to put themselves in a position to be able to afford the higher repayments on the home loan as well as other debts they might hold. This will ensure that they are in a good position if, as many economists predict, we head into leaner times in the year ahead.”