The decision that all homeowners were pretty much expecting, but silently hoping would not materialise, is now a reality: the interest rate has been increased by 0.75%.
This means that you will be paying more on your home loan from the end of this month – just how much more will depend on the value of your loan.
The repo rate was increased to 5.5%, which pushes the prime lending rate up to 9%.
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While owners of homes purchased for R1 million will now have to pay an extra R476 on their home loan, and owners of R1.5m an additional R715, homeowners with a R3m bond will have to find R1 430 more to pay it come month-end.
Here is a breakdown of home loan increases based on property value and various rate hikes:
Unsurprised by the increase, Adrian Goslett, regional director and chief executive of RE/MAX of Southern Africa, says that he is interested to see whether this latest hike will affect activity within the local housing market.
“In the first quarter of the year, we already noticed activity subside following the first interest rate hike that was announced in November 2021. However, housing market activity inexplicably bounced back in Q2 and is now even stronger than it was last year.”
While he does expect that buyer activity will take a knock following this latest hike, he is also optimistic that demand for real estate will remain strong.
“Interest rates are still roughly 1% lower than pre-pandemic levels and the housing market was still active when prime was at around 10% pre-Covid. Even after this latest interest rate hike, it is still more affordable to take out a home loan now than it was back in 2020, which leads me to believe that the property market will remain active, despite the increasing interest rates.”
The 0.75% increase will put pressure on households, says Tony Clarke, managing director of the Rawson Property Group.
“We’ve been expecting a slow and steady increase in interest rates for a while. Realistically, the lows that we had mid-pandemic were never going to be sustainable in the long term. Unfortunately, factors like international conflict, increasing global economic pressures, and our own ongoing energy crisis have forced that slow and steady rise to take a steeper trajectory than we had hoped.”
Despite the sudden increase, he too points out that prime remains well below pre-pandemic levels.
“It’s very easy to get caught up in where interest rates are heading and forget to look at where they’ve come from. In reality, we spent the full four years preceding the pandemic with prime hovering between 10% and 10.5%. Even if the SARB continues its current rate of hikes, we won’t hit those pre-pandemic levels for many months to come.”
Samuel Seeff, chairman of the Seeff Property Group says while the rate hike impacts the cost of mortgages and debt, it is not likely to affect the underlying demand in the market.
“The reality is that the weaker Rand and inflation spike to 7.4%...has accelerated rate increases. We are likely to see more aggressive hikes in September and November with the prime rate back to the pre-pandemic level of 10% by January 2023, if not sooner.”
Although homeowners and buyers need to adjust to the higher costs, he expects the property market to remain resilient.
“While slower year-on-year, we continue seeing a strong market despite the rate hikes and could end with another good year, and still ahead of the pre-pandemic volumes.”
Even with the hikes, Seeff notes that the interest rate remains favourable for the market; mortgage lending remains strong with better rates, lower deposit requirements, and up to 100% bonds for first homebuyers – still the best conditions for buyers since introduction of the National Credit Act in 2007.
Echoing much of this, Andrew Golding, chief executive of the Pam Golding Property group, says the current increased rate is still attractive to home buyers.
“More significantly, banks retain their appetite for extending mortgages to homebuyers, which is providing a solid underpinning for the local housing market, even as we move into an era of gradually rising interest rates and increasing pressure on household finances.”
He says the banks’ appetites to extend mortgages is reflected in the latest ooba data, which shows that mortgages as a percentage of purchase price have risen to a level of 93% in recent months (six-month moving average), which is the highest level in well over a decade. Furthermore, the banks are pricing those loans at an attractive 0.3% relative to prime rate on average – a level last seen in mid-2010.
As a result, activity in the South African housing market “remains buoyant”.
“House price inflation remains similarly buoyant. Despite a slowdown in house price inflation from a high of 6.04% in mid-2021, house price inflation has averaged 4.65% during the first half of this year. While lower than the 5.76% registered last year, this year’s average increase in house prices is the highest recorded since 2016 (excluding the post-pandemic boom).
“What we are seeing is that residential property is increasingly being seen by South Africans across all walks of life and, in particular, the younger generation, as a sound investment class,” Golding says.
Richard Gray, chief executive of Harcourts SA agrees: “There is still a lot of value in property investment as it generally stands the test of time in unfavourable conditions. It is best to continue investing in real estate as we are forced to tighten our belts across the board.”
He does acknowledge, however, that the rate increase was a surprise and disappointing.
“Although we had our suspicions there would be a hike, this is the highest increase in almost 20 years...It is disappointing that the SARB is choosing to raise interest rates as a counter to inflation, when the real reason for the high inflation is the fuel price and not consumers overspending.
“This paired with high inflation levels makes it very difficult for the average South African to stay afloat.”
Gray says economic fluctuations are “worrying” and that Government has a responsibility to absorb the adverse effects these elements have on its citizens.
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