The South African Reserve Bank (SARB) has announced a 25 basis point hike, taking the current prime lending rate to 10.75%.
This recent hike marks the ninth rate hike since the current hike cycle started in November 2021, totalling 375 basis points over the period.
Samuel Seeff, the chairman of the Seeff Property Group, said that while a rate hike is never welcome news, it was largely expected and factored in by the property market.
Regarding the residential property market, Seeff also shared a semi-optimistic outlook stating that despite the accelerated rate hikes since mid-2022 and the expected slowing in sales volumes, the market still ended the year on a solid foundation and entered 2023 with a degree of stability.
Seeff said that there is no doubt that the higher interest rate will weigh on the market with fewer buyers; however, the market is also set to remain stable with good activity.
“We are still seeing strong support from the banks with mortgage lending remaining favourable for the market,” he said.
Bond provider BetterBond said that although homeowners will need to pay a bit more on their monthly bond repayments, the good news is that South Africa could be heading for the peak of the current rate cycle.
As a result, interest rates could start to stabilise in the coming months and hopefully drop towards the end of this year, it said.
The SARB acted swiftly in curbing inflation by starting as far back as November 2021, said BetterBond. This could be one of the last hikes for a while, it added.
“Inflation – down again in January to 7.2% from 7.4% in December – appears to have stabilised here as in many global markets, including the US, where there is some expectation that the Federal Reserve may now halt rate hikes as a reprieve to the economy,” said Seeff.
He added that global energy prices have seemed to settle alongside the rand, and at the very least, the interest rate should now stabilise.
“Hopefully, it seems that we could perhaps again start seeing the rate come down towards the latter part of the year.”
The table below shows how much more you pay for your bond repayments today compared to the last hike.
|Value of the bond (20 years)||November 2022 (10.50%)||January 2023 (10.75%)||Change|
|R750 000||R7 488||R7 614||+R126|
|R800 000||R7 987||R8 122||+R135|
|R850 000||R8 486||R8 629||+R143|
|R900 000||R8 985||R9 137||+R152|
|R950 000||R9 485||R9 645||+R160|
|R1 000 000||R9 984||R10 152||+R168|
|R1 500 000||R14 976||R15 228||+R252|
|R2 000 000||R19 968||R20 305||+R337|
|R2 500 000||R24 960||R25 381||+R421|
|R3 000 000||R29 951||R30 457||+R506|
|R3 500 000||R34 943||R35 533||+R590|
|R4 000 000||R39 935||R40 609||+R714|
|R4 500 000||R44 927||R45 685||+R758|
|R5 000 000||R49 919||R50 761||+R842|
In light of trying economic times, potential and current homeowners should focus on what they can control, says Antonie Goosen, the principal and founder of Meridian Realty.
Goosen suggested the following six considerations for prospective and current homeowners:
- Use a bond originator to secure the best rate. Many financial institutions continue to compete and offer relatively favourable terms, some offering 100% bonds.
- Choose from fixed interest rates vs variable bonds. You can only fix the interest rate on a bond for a maximum of five years, but this might make budgeting in high-interest periods easier, even though your interest might be higher.
- Consider renting a garden cottage out or running an Airbnb as additional income to put toward rising bond repayments.
- Pay more than your monthly repayment into your bond.
- If you have a big property, consider subdividing. This can mean you cut down on maintenance costs and make money on the land that you were not using. Put this money into your bond, if you can, to shorten the payback period and essentially the amount of interest you would be paying on the property.
- Consider renting rather than buying. When renting a property, you know your rent is fixed for a year with an annual increase usually of 10%.