How much it costs to finance a R1 million bond at the current interest rate

While those with a mortgage in South Africa can breathe a sigh of relief, given the pause in interest rates for July, they are still paying a lot more compared to just 19 months ago, with a R1 million bond now costing over R3,000 more to finance at the current interest rate.
The South African Reserve Bank’s (SARB’s) Monetary Policy Committee (MPC) on Thursday voted to hold rates, keeping the repo rate at 8.25%, with the prime lending rate at 11.75%.
Since the start of the rate hike cycle in November 2021, rates have been hiked by 475bps to the highest levels in 15 years.
Chairman of the Seeff Property Group, Samuel Seeff, said that holding the interest rate was the correct decision given that inflation has, against expectation, been coming down rapidly over the last three months to 5.4% in June and is now within the central bank’s 3%-6% target range.
“Along with electricity and other hikes, the burden on consumers, homeowners and buyers has been simply too high. Consumers, homeowners and buyers have had to absorb enough rate hikes now,” Seeff said.
“The interest rate is too high and has been stymieing economic growth and driving unemployment and higher debt levels. The higher interest rate has done more harm than good. The bank should now be looking at lowering the interest rate,” he added.
The higher interest rate has also driven down property sales volumes, even in the Cape market, which has been strong.
This is because over the last 19 months, since the rate hike cycle first started in November 2021 from the prime lending rate of 7% in September, homeowners with bond repayments are now paying 40% more to finance them.
Before the rate hike cycle, it cost around R7,753 to finance a R1 million bond. At the current rate, the same valued home will now cost R10,837 to finance – R3,084 more over 19 months.
All bondholders across the market have had to swallow these sharp hikes, and those at the bottom end of the spectrum with a home value of R750,000 have had to fork out R2,313 more, while those servicing a R5 million bond have had to pay R15,420 more over the same period.
According to Chris Tyson, chairman of Tyson Properties, those that have struggled with the hikes are often those that took advantage of the low-interest rates during the Covid pandemic, which lured many buyers into the market with unrealistic rates, and he does not envisage interest rates dipping drastically or reaching such low levels again.
The table below highlights how much it costs to finance a bond at the current interest rate compared to September 2021, before the rate hike cycle started.
Value | Sept 2021 (7%) | July (11.75%) | Change |
---|---|---|---|
R750,000 | R5,815 | R8,128 | +R2,313 |
R800,000 | R6,202 | R8,670 | +R2,468 |
R850,000 | R6,590 | R9,212 | +R2,622 |
R900,000 | R6,978 | R9,753 | +R2,775 |
R950,000 | R7,365 | R10,295 | +R2,930 |
R1,000,000 | R7,753 | R10,837 | +R3,084 |
R1,500,000 | R11,629 | R16,256 | +R4,627 |
R2,000,000 | R15,506 | R21,674 | +R6,168 |
R2,500,000 | R19,382 | R27,093 | +R7,711 |
R3,000,000 | R23,259 | R32,511 | +R9,252 |
R3,500,000 | R27,135 | R37,930 | +R10,795 |
R4,000,000 | R31,012 | R43,348 | +R12,336 |
R4,500,000 | R34,888 | R48,767 | +R13,879 |
R5,000,000 | R38,765 | R54,185 | +R15,420 |
Property market outlook
However, despite the current level of interest rates, the hold on rates brings some positive signs.
The upside is that we are now undoubtedly in a buyer’s market. The effect is that sellers will now really have to focus on pricing accurately to attract buyers, said Seeff.
“For buyers, this could be one of the best times to buy, with prices trading relatively flat while the banks are still lending,” he added.
Chris Tyson is equally optimistic and realistic, pointing out that the latest BetterBond survey indicates that even though the number of home loan applications may have fallen off as the market waits out the interest rate cycle, property prices have not dropped.
Property remains a sound investment, especially for first-time buyers who are likely to get more value for their rands at a time like this, he said.
“This is indeed encouraging news for existing and aspiring mortgage holders. Consumers, especially those with mortgages and other debt, will no doubt be breathing a collective sigh of relief at the announcement, which hopefully heralds a shift towards a stable repo rate and the start of a downward repo rate cycle in 2024,” added the chief executive of the Pam Golding Property group, Andrew Golding.
“The Reserve Bank itself recently conceded that interest rates at current levels are restrictive, fortunately, however, it appears that inflation has turned a corner,” he said.
According to FNB Chief Economist Mamello Matikinca-Ngwenya, this pause is consistent with the MPC taking stock of local inflation that has fallen within the target band in June, US inflation that has fallen closer to target, as well as an improvement in the risk associated with SA assets and the implied starting point for the rand since the previous MPC meeting.
However, homeowners are not out of the woods yet and should factor in potential hikes in the second half of the year.
‘Prevailing upside inflation and funding risks should keep the MPC cautious. To insulate their ability to reach the 4.5% inflation target in the medium term, the hiking cycle may be resumed, and most likely, interest rates will remain higher for longer,” said Matikinca-Ngwenya.
Read: What the new generation of homebuyers are looking for in South Africa