This week’s interest rate hike may very well be the final straw for many homeowners who have been desperately hanging on to their properties by their fingertips.
THIS week’s interest rate hike may very well be the final straw for many homeowners who have been desperately hanging on to their properties by their fingertips.
The blows just keep on coming as they battle what seems to be every economic challenge possible – fuel price increases, rising inflation, escalating costs of living, higher unemployment levels and ever-growing interest rates.
At some point, something has to give; but, unfortunately, it is not the South African Reserve Bank – not this past week, at least.
Samuel Seeff, chairperson of the Seeff Property Group, said there was “adequate reason” for the Reserve Bank to have taken a “more dovish stance” in view of the current economic climate. Instead, it hiked the rate for the 10th time in two years, placing a “huge burden” on the shoulders of consumers and home buyers.
“The rate hike is a killjoy for the struggling economy, especially in view of the fallout from the Eskom energy crisis,” he added.
Ultimately, the property market needs positive news and the rapidly rising borrowing cost has put a dampener on it.
“First-time home-buyers, many from the emerging middle class, are facing affordability challenges, and overall sales volumes have declined, more in some areas and to a lesser degree in other markets.”
As a result of the latest 0.5% interest rate hike, Seeff says monthly bond repayments over a 20-year term will increase by approximately:
R750,000 bond – extra R259 from R7,869 to R8,128
R900,000 bond – extra R310 from R9,443 to R9,753
R1 million bond – extra R344 from R10,493 to R10,837
R1.5m bond – extra R517 from R15,739 to R16,256
R2m bond – extra R689 from R20,985 to R21,674
R2.5m – extra R862 from R26,231 to R27,093
Even though, given the current economic quagmire, a rate hike was inevitable, said Yael Geffen, chief executive of Lew Geffen Sotheby’s International Realty, a 0.25% increase would have been “far kinder” to consumers.
“We’re battling 14-year food inflation highs, our already abysmal employment stats have dropped further, and real household income is down. And that’s before we even start talking about the expected Stage 8 load shedding, the Russian arms scandal, and what US and EU sanctions could do to our country’s supply chains and export industries,” Geffen said.
Since November 2021 – a period of just 18 months – she said homeowners with fairly modest R2 million bonds have been “slammed” with increases of more than R6,000.
“We’re getting deeper and deeper in the weeds while the government’s idea of problem-solving is finger-pointing at everyone else. The private sector is doing its best, but we can’t do it without a functional national administration,” she said.
The 0.5% hike will put greater pressure on the property market that’s unlikely to ease for the remainder of the year, Geffen added.
David Jacobs, regional sales manager for the Rawson Property Group, agreed: “South Africans are battling rising costs on every front, from food to fuel to home finance.
“After the last rate hike, we were optimistic that we’d finally seen the peak of the current interest rate cycle.”
This, however, was not to be, and now some homeowners may see their monthly bond repayments “tip over the edge of affordability”.
“Established homeowners who are a fair way into their loan term will hopefully have a little more financial wiggle room, with several years of income growth behind them. More recent buyers, on the other hand – particularly those who purchased at the peak of their affordability during Covid’s record-low interest rates – have not had the benefit of time to grow into their bond repayments,” said Jacobs.
Interest rate hikes were therefore hitting these new homeowners the hardest, forcing some to reconsider the viability of their investments. And although selling their homes is not the only option, he said the reality was that distressed sales were increasing.
Echoing this, Adrian Goslett, regional director and chief executive of RE/MAX of Southern Africa, said the latest hike might push many consumers beyond what they can afford.
“We have already noticed the shift in the property market where we are receiving more enquiries from sellers and less interest from buyers. Every interest rate hike reduces consumers’ spending power and their affordability levels get placed under further pressure. A hike like this is likely to cause activity within the property market to tighten even further.”
While South Africa had weathered “far higher” interest rates in the past, Andrew Golding, chief executive of the Pam Golding Property group, said the higher interest rate would undoubtedly provide a challenge for the many first-time buyers who capitalised on the low rates during the pandemic to gain a foothold in the property market.
Against the backdrop of the current lacklustre economic outlook for South Africa, with load shedding, in particular, weighing on growth prospects, the property market is facing “significant headwinds”.
But all is not doom and gloom, said Tyson Properties chief executive Nick Pearson, who predicted that there would not be any panic selling of homes.
“People still have some room to make adjustments and banks have been consistent in their willingness to assist customers to ride out economic storms over the past couple of years.”
He did, however, acknowledge that consumers and potential home-buyers were under “immense pressure” as their household disposable incomes seemed to shrink almost monthly.
The repo rate now stands at 8.25% and the prime lending rate 11.75%.
