Property

How much more you’ll pay on your monthly bond if interest rates go up again next month

Staff Writer

 ·26 Jun 2023

Over the past 19 months, South Africa has experienced aggressive monetary policy tightening, and if this continues in July, South Africans will be struck with an eleventh rate hike – making living that much more expensive for those with mortgages.

The SARB’s Monetary Policy Committee (MPC) unanimously voted to hike rates by 50 basis points in May, taking the repo rate to 8.25% and the prime lending rate to 11.75%.

According to Reserve Bank governor Lesetja Kganyago, the move to hike rates comes amid persistently high consumer price inflation and a sluggish economy – exacerbated by severe load shedding.

This recent hike marks the tenth-rate hike since the current hike cycle started in November 2021, totalling 475 basis points over the period.

Rates remain at their highest point in 13 years since the fallout from the global financial crisis weighed on the local currency.

Several property experts have responded to the hike citing concerns that consumers are already under immense financial pressures – adding further strain to South Africans’ ability to service their home loans.

Chairman of Seeff Property Group, Samuel Seeff, said the rate hikes had placed a huge burden on consumers and homebuyers, and the direct effect on homeowners and buyers is that the cost of borrowing has risen drastically over the last two years.

Lew Geffen Sotheby’s International Realty CEO, Yael Geffen, agreed with this sentiment and said, “South Africa is battling 14-year food inflation highs, our already abysmal employment stats have dropped further, and real household income is down”.

“Since November 2021 – a period of just 18 months – homeowners with fairly modest R2 million bonds have been slammed with increases of more than R6,000,” she said.

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

Considering these concerns, BusinessTech calculated how much more homeowners and prospective buyers would have to fork out if the SARB were to hike interest rates yet again, with a repayment projection based on a 25, 50, 75, and 100 basis points hike on 20 July 2023.

In the best-case scenario, the SARB will choose to keep the interest rate unchanged in July, which would mean Homeowners could expect no change in their repayments.

However, even if the rate hike were to stay unchanged, the cost of home loan repayments have increased by 39% since the hike cycle started in November 2021.

If the SARB takes the decision to marginally hike the rates by another 25bps, the cost would become 42% more expensive since the cycle started, while an unlikely 100bps hike would mean a 49% change in the cost to service the same repayment.

The table below summarises how much more you would pay if the SARB hiked rates by between 25 and 100 basis points.

Read: Reserve Bank rate hikes coming home to roost