How much more you will pay on your bond after South Africa’s latest interest rate hike

For most homeowners with bonds, the interest rate hike announced by the Reserve Bank on Thursday (27 January) will mean paying extra on their monthly repayments.

While economists were largely unanimous on the possibility of a hike ahead of the announcement, the decision to hike the repo rate by 25 basis points to 4% (base home loan rate to 7.5%) is still disappointing says Dr Andrew Golding, chief executive of the Pam Golding Property group.

“Following on from November’s repo rate increase, we had hoped that there would be a pause in the upward cycle trend.

“However, with the December consumer inflation rate (at 5.9%) close to the upper limit of the Reserve Bank’s inflation target and with local risks to the inflation outlook firmly on the upside – the MPC was likely to take this decision to increase rates now.”

Notwithstanding this, the interest rate will hopefully increase slowly and over an extended period of time, Golding said.

The decision by the SARB to increase rates was entirely expected and is unlikely to affect the momentum in the property market, added Samuel Seeff, chairman of the Seeff Property Group.

Against the backdrop of rising inflation and a higher oil price, Seeff says, while unfair, it is inevitable that the consumer will, unfortunately, have to absorb the higher costs – even though the rising inflation is not a result of higher consumption.

Nonetheless, he adds that even with the hikes, the rate remains at the lowest levels in decades and will continue serving as an inducement to buyers.

“We expect the market to absorb the hike comfortably and for the momentum to continue. Looking back over the last year, the market has again defied expectation and ended with some of the highest sales in over three years,” he said.

Given the hike, the table below outlines what South Africans will now be paying on their monthly bonds, based on a 20-year loan.

Value of the bond Old monthly cost New monthly cost Change
R1 000 000 R7 904 R8 056 +R152
R1 500 000 R11 856 R12 084 +R228
R2 000 000 R15 808 R16 112 +R304
R3 000 000 R23 711 R24 168 +R452

Despite the rate hiking cycle now in effect, it is still the best buyer’s market in decades, supported by bank lending which remains the best in over a decade with higher loan-to-value bonds available and first-time buyers still able to secure 100% bonds, often with a cost allowance on top of that, Seeff said.

“Price growth has been kept flat, largely inflation-linked due to slow economic growth and rising inflation. Buyers can therefore still benefit from well-priced stock in the market.

“That said, the rate hiking-cycle signals some caution for buyers and homeowners to be mindful that we are likely to see further hikes this year and they must build that into their home-ownership plan”.

Sign of recovery

Following the Reserve Bank’s decision to raise its repo rate by 0.25%, FNB said it will lift its prime lending rate by 0.25% with effect from Friday (28 January).

“The SARB’s decision to adjust rates is a sign of recovery in the underlying economic activity. The mitigation of inflationary pressure by normalising interest rates provides South Africa with a path to transition from the emergency measures implemented over the last two years,” said chief executive Jacques Celliers.

“Furthermore, normal operating conditions will be conducive to broad-based economic recovery that will also benefit sectors that are disproportionately impacted by the pandemic. Our country needs to take deliberate steps towards full recovery after two years of remarkable resilience. We’re certainly encouraged by the enthusiasm of our retail and commercial clients to unlock growth opportunities.”

Read: South African Reserve Bank hikes rates

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How much more you will pay on your bond after South Africa’s latest interest rate hike