How much more will you pay on your bond after South Africa’s latest rate hike?

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Homeowners and consumers will tighten their belts as interest rates rise for the sixth time in a row, with the Reserve Bank raising the repo rate by another 75 basis points to 6.25%.

The base interest rate for home loans goes to 9.75%.

This is now effectively bringing interest rates back to pre-pandemic levels. Samuel Seeff, chairman of the Seeff Property Group, said that while the increase was largely expected, stability is now vital to the economy and the market.

Seeff said the central bank must now indicate when the walking cycle will end.

While the oil price is more supportive and positive for the economy, inflation remains above the Reserve Bank’s target range, despite slowing slightly to 7.6% in August (from 7.8% in July). It is also understandable that the bank would want to protect the currency given the further deterioration against the dollar this week, Seeff said.

Despite the balancing act the bank must do, Seeff said stability must return to the economy and the real estate market. The economy needs a kickstart and a favorable interest rate is indispensable for this.

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As for the impact of the walking cycle on the real estate market, Seeff said a two-speed market is starting to emerge. While demand is still high on the one hand, buyer hesitation is on the rise, while deals on the other hand are taking much longer.

Aside from rising interest rates, Seeff said the deteriorating conditions in the country are not helping. The power outages combined, poor economic data and macro events, including the crisis in Ukraine, could increase buyer hesitation.

Deteriorating buying conditions are likely to push more people into the rental market. Given that there are inventory shortages in certain areas, Seeff said the country could see rents rise, which will be good for the rental market.

“Realistically, the SARB is caught between a rock and a hard place right now,” said Tony Clarke, MD of the Rawson Property Group. “They know very well the financial pressures consumers are under and how raising interest rates will affect them in the short term, but they also know how much worse things could get if inflation spirals out of control.”

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Clarke said raising interest rates is a proven method of controlling excessive inflation. However, it often makes life more difficult before conditions improve.

“Homeowners will definitely feel like their bond payments are continuing to rise alongside the rest of their day-to-day expenses,” Clarke said. “For some there will be very difficult decisions. Most households have very little luxury left to cut back.”

Despite some relief in the form of the petrol price drop in September, Clarke said this rapid climb will undoubtedly push some homeowners past the point of no return if their finances aren’t in order.

“We expect an increase in distressed sales by homeowners who are no longer able to pay off their debts,” he said. “This is always a heartbreaking situation, but it doesn’t have to be a life-altering financial loss.”

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As a result of the interest rate increase, a home loan in twenty years at the prime/base rate now costs extra:

Value of the bond (20 years) Old monthly costs (9%) New monthly costs (9.75%) Change
R750 000 R6 748 R7 114
+R366
R800 000 R7 198 R7 588
+R390
R850 000 R7 648 R8 062
+R414
R900 000 R8 098 R8 537
+R439
R950 000 R8 547 R9 011
+R464
R1 000 000 R8 997 R9 485
+R488
R1 500 000 R13 496 R14 228
+R732
R2 000 000 R17 995 R18 970
+R975
R2 500 000 R22 493 R23 713
+R1 220
R3 000 000 R26 992 R28 456 +R1 464
R3 500 000 R31 490 R33 198
+R1 708
R4 000 000 R35 989 R37 941
+R1 952
R4 500 000 R40 488 R42 683
+R2 195
R5 000 000 R44 986 R47 426
+R2 440

Read: Reserve Bank raises rates by another 75 basis points

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