How much more you’re paying on your bond since the rate hike cycle started

 ·23 Apr 2023

South Africans are buckling under the pressure of cumulative rate hikes, and they are now paying 35% more on their home loans since the hike cycle started at the end of 2021.

The South African Reserve Bank’s (SARB’s) Monetary Policy Committee hiked interest rates in the country by 50 basis points in March, taking the repurchase rate to 7.75% and pushing the prime lending rate to 11.25%.

The latest rate hike marks the ninth in the current cycle, with the total adjustment being 425 basis points since the hike cycle started in November 2021.

Rates are now at their highest point in 13 years (June 2009), when the fallout from the global financial crisis weighed on the local currency.

As a result, the current hike cycle has made it more expensive for consumers to finance their debt, putting South Africans under considerable pressure.

Responding to Moneyweb, Nedbank said households have generally been resilient, but there are early signs of stress emerging due to higher interest rates and inflation.

These signs can be seen in the notable increase in impairment charges across the major banks in South Africa, evident in their recent annual financial reports.

Nedbank and FirstRand reported increases of 13% in credit impairments, while Standard Bank reported impairments were up 22%.

Absa recorded an increase of 61%, and Capitec noted a staggering increase of 80% to R6.3 billion.

In light of dire economic strain on average South Africans and an undesired turn to relying on credit for everyday living expenses, Capitec CEO Gerrie Fourie said the bank had limited its credit facilities – making over 900 changes to its credit policies, purely because of the risk the bank sees with people turning to credit currently.

The table below shows each bank’s impairment values and percentage change compared to the previous financial year. However, it must be noted that Absa’s reported credit impairments also include Ghana.

Bank Impairment % Change
Capitec R6.3 billion +80%
Absa R13.7 billion +61%
Standard Bank R12.1 billion +22%
Nedbank R7.4 billion +13%
FirstRand R3.9 billion +13%

Bond repayments 

Capitec noted the impact of higher interest rates has led to a 20% increase in the value of its average home loan debit orders, adding that the number of customers rolling into arrears and going into debt review has increased.

However, in the last 18 months – when the hike cycle started in November 2021 – homeowners are now paying 35% more for their monthly mortgage repayments.

The CEO of Lew Geffen Sotheby’s International Realty, Yael Geffen, said the reason for this is homeowners are not getting salary increases that can accommodate the hikes in monthly bond repayments, which could lead to many having to sell their homes.

“No salary increases can accommodate the R5,500’s worth of monthly mortgage repayment hikes we’ve experienced in the last 18 months, which is the case for every household in the country currently servicing a R2 million bond,” said Geffen.

“The situation is untenable, and people are going to lose their homes and livelihoods,” she added.

To make things worse, forward-rate agreements starting in two months — used to speculate on borrowing costs — show traders are fully pricing in a quarter-point (25bp) increase in the repurchase rate, with a chance of a more significant 50-basis point move on 25 May when the monetary policy committee gives its next decision.

That’s after statistics office data showed the annual inflation rate quickened to 7.1% from 7% a month earlier, counter to economists’ expectations that it would fall to 6.9%.

The table below shows how much more you are paying for your bond repayments since the start of the rate hike cycle in November 2021.

Value of the bond (20 years) September 2021 (7%) March 2023 (11.25%) Change
R750 000 R5 815 R7 869 +R2 054
R800 000 R6 202 R8 394 +R2 192
R850 000 R6 590 R8 919 +R2 329
R900 000 R6 978 R9 443 +R2 465
R950 000 R7 365 R9 968 +R2 603
R1 000 000 R7 753 R10 493 +R2 740
R1 500 000 R11 629 R15 739 +R4 110
R2 000 000 R15 506 R20 985 +R5 479
R2 500 000 R19 382 R26 231 +R6 849
R3 000 000 R23 259 R31 478 +R8 219
R3 500 000 R27 135 R36 724 +R9 589
R4 000 000 R31 012 R41 970 +R10 958
R4 500 000 R34 888 R47 217 +R12 329
R5 000 000 R38 765 R52 463 +R13 698

Optimistic Forecast for 2023

Towards the latter parts of 2023, the global and local economy is likely to stabilise, said Fourie.

Speaking to BusinessTech after publishing the group’s latest results, Fourie said that the next few months of the year are tough to call – with things either getting better or worse – but in either case, the situation will likely normalise by September or October.

Echoing sentiments from the South African Reserve Bank, the Capitec CEO said that headline inflation would start coming down as the year progresses. At the same time, interest rates should stabilise alongside the supply chain.

“All economists say it will normalise, and we will get back to normal trends; that will then force the US Fed and South Africa to stop increasing interest rates,” said Fourie.

“This is what everyone is predicting, but one will have to wait and see how it pans out,” He added.

Read: House prices in South Africa have doubled – how Cape Town compares to Joburg, Durban and other metros

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