Interest Rates Climb Higher and Higher, but Homes are Still Affordable

 REI speaks to Adrian Goslett from RE/MAX and Samuel Seeff from Seeff Property for their reaction to the latest interest hike.

Interest rates continue to climb following the latest announcement by the Monetary Policy Committee (MPC) on Thursday 24 March. The repo rate jumps by 25 basis points to 4.25%, leaving the prime lending rate at 7.75%.

As a result of the latest rate hike, and based on a housing bond at the base rate over twenty years, homeowners and property buyers will need to budget for an extra:

Bond Amount

  • R750,000 – extra R115 (repayment increases from R6,042 to R6,157)
  • R900,000 – extra R139 (repayment increases from R7,250 to R7,389)
  • R1,000,000 – extra R153 (repayment increases from R8,056 to R8,209)
  • R1,500,000 – extra R230 (repayment increases from R12,084 to R12,314)
  • R2,000,000 – extra R307 (repayment increases from R16,112 to R16,419)
  • R2,500,000 – extra R384 (repayment increases from R20,140 to R20,524)

The rate hike came as no surprise to Regional Director and CEO of RE/MAX of Southern Africa, Adrian Goslett, who had predicted that interest rates would climb in response to rising inflation and the global instability surrounding the Russia – Ukraine conflict.

“Sadly, South Africans will have to tighten their belts over the next few months. Rising fuel and food costs, as well as higher debt repayments resulting from the latest interest rate hike, will undoubtedly put pressure on household budgets,” he explains.

However, according to Goslett, it is not all bad news for the outlook of the country. “South Africa could be posed for growth if it positions itself well to fill the gaps in the global supply/demand chain. Exports already increased by 8,5% in the fourth quarter of 2021 and this stands to increase further in 2022 if the correct opportunities are seized.”

Samuel Seeff, chairman of the Seeff Property Group, says that the decision by the SARB to hike the repo rate for a third successive time by 25 basis points to 4.25% (hiking the prime rate to 7.75%) was expected and largely factored into their outlook for the housing market.

“Although we had hoped for a pause by the Bank to provide some reprieve for homeowners and buyers who are facing rising costs, we believe the market is now well aware that the rate is stepping up this year to counter inflation and to normalise it after the dramatic rate cuts in 2020, “says Seeff.

“At the present 7.75%, the interest rate is still well below the 10% level of early 2020 before we entered the pandemic. It is generally still cheaper to buy than rent and at the end of the day, you will have a valuable asset and a secure roof over your head,” explains Seeff.

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Seeff is not expecting any dramatic impact on the housing market. Volumes appear to have tapered from the highs of 2021, as most of the pent-up demand has now been absorbed. Nonetheless, he says the market is still trading above pre-pandemic levels and the outlook remains upbeat. The rental market has also stabilised with rental growth finally edging up marginally from the negative outlook seen in the mid-2020 to 2021 period.

Seeff concludes by welcoming the relaxation of the pandemic restrictions as a welcome boost to open the economy further, but adds that consumers must be mindful of potential risks such as the rising prices and any possible fall-out from geopolitical risks emanating from the Russia-Ukraine War.

Goslett adds that while the interest rate hike will mean lower spending power for most local households, he hopes that it will encourage South Africans to pay off debts as quickly as possible. “The amount of personal debt (in the form of car loans, shopping accounts, and credit card facilities) that South Africans carry is high. Carrying less debt will allow more South Africans the financial flexibility to seize investment opportunities as and when they arise. They can then take on better forms of debt, such as home finance, to invest in assets that appreciate over time. My hope is that this increase might bring with it positive change in consumer behaviours and that this change may come to benefit the local housing market in the long term,” he concludes.

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