South Africa has experienced two interest rate hikes so far this year and, while the doomsayers may be saying “we told you so”, our repo rate still has an awfully long way to go before it reaches the scary highs of the mid-2000s.
So what does the latest hike mean to the average South African property owner? To be honest, at this stage, not much.
BetterBond recently reported that the rise will translate to existing homeowners having an increase of around R122 per month on a 20-year home loan of R757 000, which is the current national average for approved bond amounts.
First-time buyers, who on average spend R587 000 on a new home, will have an increase of R95 per month.
BetterBond's CEO Shaun Rademeyer says that the increase of 0.25 percentage points in both the repo (to 5.75%) and the variable home loan (to 9.25%) interest rates means that the minimum monthly installments on home loans will rise by R16 for every R100 000 borrowed.
First-timers may now encounter bond difficulties
While the increases for existing homeowners are minimal, those looking to enter the market may find that it is now more difficult to qualify for a new home loan.
“The household income requirement for the average loan will rise from around R22 700 a month to around R23 200 – a R500-a-month increase that may be difficult to achieve at this time of year and in the current economic scenario when jobs are under threat,” says Rademeyer.
“The banks are also expected to apply tighter credit control criteria to ensure that borrowers will not become over-indebted and will be able to manage their repayments at the higher interest rate level on top of the higher repayments on any other debts that they have.”
It is highly advisable for prospective homebuyers to obtain pre-qualification for a home loan before they start looking for a property, in order for them to know what they can realistically afford. It is also recommended that buyers try and put down at least a 10% deposit. This, says Rademeyer, will not only make it easier for them to qualify for a loan, but will also give them some financial leeway if rates continue to increase over the next two years – as expected.
Obviously, an unknown factor is whether or not repo rates will rise in the foreseeable future. Nevertheless, banks have an inside track on the direction that the repo rate is likely to take and on the likelihood of the property market burgeoning or just idling along. Undoubtedly, they will factor this prospective knowledge into their lending policies. All indicators point to at least one more increase in the repo rate and potential buyers who are already at the end of their financial tether must take this into account before deciding to purchase. On the other hand, if you find a home with solid value and are willing to rein in your other debts, why not buy?