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

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.

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.