Yesterday’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 month, at least.
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Samuel Seeff, chairman of the Seeff Property Group, says there was “adequate reason” for the 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 consumer and homebuyers.
“The rate hike is a killjoy for the struggling economy, especially in view of the fallout from the Eskom energy crisis,” he adds.
Ultimately, the property market needs positive news and the rapidly rising borrowing cost has put a dampener on it.
“First-time homebuyers, 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
- R1m 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, Yael Geffen, chief executive of Lew Geffen Sotheby’s International Realty, says a rate hike was inevitable, 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.”
Since November 2021 – a period of just 18 months – she says 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.”
The 0.5% hike will put greater pressure on the property market that’s unlikely to ease for the remainder of the year, Geffen adds.
“South Africans are battling rising costs on every front, from food to fuel to home finance,” agrees David Jacobs, regional sales manager for the Rawson Property Group.
“After the last rates 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.”
Interest rate hikes are 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 says the reality is that distressed sales are increasing.
Echoing this, Adrian Goslett, regional director and chief executive of RE/MAX of Southern Africa, says today’s 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 has weathered “far higher” interest rates in the past, Andrew Golding, chief executive of the Pam Golding Property group, says the higher interest rate will undoubtedly provide a challenge for the many first-time buyers who capitalised on the low rates during the pandemic in order 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, says Tyson Properties chief executive Nick Pearson, who believes that there will 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 does, however, acknowledge that consumers and potential homebuyers are under “immense pressure” as their household disposable incomes seem to shrink almost monthly.
The repo rate now stands at 8.25% and the prime lending rate 11.75%.
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