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

The South African Reserve Bank’s (SARB) Monetary Policy Committee (MPC) on Thursday (21 July), hiked the repo rate by 75 basis points to 5.5% – taking the prime lending rate to 9% – making financing a home more expensive.

And while the decision to hike the repo rate by 75 basis points is somewhat of a shock, a steeper hike was expected by the property market, said Samuel Seeff, chairman of the Seeff Property Group.

Seeff said that while the hike impacts the cost of mortgages and debt, it is not likely to affect the underlying demand in the market.

“The reality is that the weaker rand and inflation spike to 7.4% has accelerated rate increases. We are likely to see more aggressive hikes in September and November with the prime rate back to the pre-pandemic level of 10% by January 2023, if not sooner,” Seeff warned.

Although homeowners and buyers need to adjust to the higher costs, Seeff expects the property market to remain resilient. He said that while the SARB is understandably faced with a difficult task and the rate hike may support the currency, this alone will not turn the tide.

“The high inflation is not because of higher consumer spending, but external factors such as fuel and food hikes which, with the rate hike, is a double-whammy for consumers who must carry the costs.”

Seeff said other factors could have a bigger impact on the local property market. These include the weak economy compounded by the lack of action on the Zondo Corruption Report, the Ramaphosa Phala-Phala scandal, electricity crisis, fuel hikes and record low business confidence levels – all of which require urgent government intervention.

“We’ve been expecting a slow and steady increase in interest rates for a while,” said Tony Clarke, MD of the Rawson Property Group. “Realistically, the lows that we had mid-pandemic were never going to be sustainable in the long term.

“Unfortunately, factors like international conflict, increasing global economic pressures and our own ongoing energy crisis have forced that slow and steady rise to take a steeper trajectory than we had hoped.”

Despite the sudden increase, Clarke pointed out that prime remains well below pre-pandemic levels.

“It’s very easy to get caught up in where interest rates are heading and forget to look at where they’ve come from,” he said. “In reality, we spent the full four years preceding the pandemic with prime hovering between 10% and 10.5%. Even if the SARB continues its current rate of hikes, we won’t hit those pre-pandemic levels for many months to come.”

For prospective buyers hoping to secure a new bond in the coming months, Clarke said there is no reason to put a pin in well-laid plans.

“Banks’ lending criteria will be getting stricter, but they’re also likely to have fewer applicants as affordability declines,” he said. “That means there could be a bit of a bunfight for really strong candidates armed with excellent credit records and reasonable deposits.

“This is definitely one of those times getting prequalified and having a bond originator negotiating for you can pay real dividends when offers hit the table.”

Qualified buyers will likely be spoiled for choice as tight finances drive more properties to sale. Clarke does not, however, expect to see any immediate negative impact on South African property price growth.

“Banks retain their appetite for extending mortgages to homebuyers, which is providing a solid underpinning for the local housing market, even as we move into an era of gradually rising interest rates and increasing pressure on household finances,” said Dr Andrew Golding, chief executive of the Pam Golding Property group.

The banks’ appetite to extend mortgages is reflected in the latest Ooba data, which shows that mortgages as a percentage of purchase price have risen to a level of 93% in recent months -six-month moving average -the highest level in well over a decade.

The table below outlines what you can expect to now pay on your bond each month, following the rate hike:

Value of the bond (20 years) Old monthly cost (8.25%) New monthly cost (9%) Change
R750 000 R6 390 R6 748 +R358
R800 000 R6 817 R7 198 +R381
R850 000 R7 243 R7 648 +R405
R900 000 R7 669 R8 098 +R429
R950 000 R8 095 R8 547 +R452
R1 000 000 R8 521 R8 997 +R476
R1 500 000 R12 781 R13 496 +R715
R2 000 000 R17 041 R17 995
R2 500 000 R21 302  R22 493 +R1 191
R3 000 000 R25 562 R26 992 +R1 430
R3 500 000 R29 822 R31 490 +R1 668
R4 000 000 R34 083 R35 989 +R1 906
R4 500 000 R38 343 R40 488 +R2 145
R5 000 000 R42 603 R44 986 +R2 383

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