Weekend Argus (Saturday Edition)
Budget for your bond hike
PROPERTY experts and economists have predicted a 0.5% increase at the end of this month, which means homeowners must prepare to pay extra on their bonds.
Just how much more you will pay depends on the value of your home loan.
The repo rate is 6.25%, which means the prime lending rate is sitting at 9.75%. If the interest rate is hiked by the predicted 0.5% to reach 10.25%, then your repayments this month – if your loan period is 20 years – will increase by:
• R1 million bond – R331
• R1.5 million bond – R497
• R2 million bond – R663
• R2.5million bond – R828
• R3 million bond – R993
• R3.5 million bond – R1 160
• R4 million bond – R1 325
Bond repayments have become a struggle for some homeowners, says Leondard Kondowe, the finance manager for the Rawson Property Group.
“As bond originators, we’re sometimes able to advise struggling bondholders on ways to restructure their personal finances to free up capital for their bond. When this isn’t possible, or the results aren’t significant enough, however, it’s essential that bondholders approach their lender directly, and as quickly as possible.”
Although lenders are typically willing to offer compromises, he urges bondholders not to mistake the helpful attitude for general leniency.
“It’s absolutely critical that you honour the new agreements you make with your lenders. Not doing so risks adversely impacting your credit rating, and could see your new agreement revoked.”
Between the rising cost of things like credit card debt and vehicle finance, fuel and groceries, and poor salary growth, it’s no surprise that South Africans are feeling the pinch. This hasn’t affected only new bond applicants, but also those paying off home loans, Kondowe says.
For example, someone paying R7 675 a month on a R1m home loan in mid-2020, would now
be paying R9 390 a month. That’s almost R2 000
extra to find in the budget, every month.
Given that many homeowners will be paying more on their bonds, BetterBond expects to see lower transaction volumes and a softening of house prices, says chief executive Carl Coetzee.
“This will be segmented across the market, with the lower end relying on housing finance.
“The good news is banks have a healthy appetite to lend and we are seeing that BetterBond’s approval ratio for the 12 months ending October
has increased by 2.3% year-on-year.
“Affordability should always be a consideration when buying a home, irrespective of where we are in the rates cycle. The upward trajectory is a reminder to homeowners and prospective buyers to budget wisely and consider household expenses when looking at property prices.”
Barbara Larney, of Re/Max Wine and Whales, explains that rising interest rates make buying or selling a home more difficult. As interest rates increase, affordability decreases.
“But, if the economy grows fast enough, rising interest rates will not greatly affect property value and housing prices. There’s always a light at the end of the tunnel in real estate. It’s just a matter of finding that opportunity. For example, even if the economic uncertainty causes the housing market to cool, this could potentially open opportunities to purchase properties at reduced prices.
“Buying a home as interest rates are rising is nothing to fear. The prime rate was 25% at the
start of 1994 and decreased to 7% at the end of
2020. Now, at 9.75%, the rate is low,” says Larney.
The bigger concern, states Re/Max chief executive Adrian Goslett, is that if economist predictions of South Africa’s GDP shrinking slightly next year come true, this will impact unemployment rates and put greater pressure on tax-paying citizens, beyond the increasing interest rates.
“I recommend that all homeowners make sure to put themselves in a position to be able to afford the higher repayments on the home loan as well as their other debts.
“This will ensure that they are in a good position if, as many economists predict, we head into leaner times in the year ahead.”