The interest rate hike of 0.75% will be “devastating” for consumers, but there are ways you can get through them with your finances in check.
Yael Geffen, chief executive of Lew Geffen Sotheby’s International Realty, says the rate hike is the “highest single rise in nearly 20 years, putting massive pressure on South Africans who are already dealing with huge increases in the basic cost of living and the previous rates hikes already imposed this year”.
“The effect will be even worse for mortgage holders. What this increase means for home buyers in the R2 million range is a monthly repayment hike of nearly R1 000, or some R3 000 since November last year.”
The only good news right now, she says, is that house prices are not going to come down, so those who are in the market to buy “should get in now”.
“Just ensure that you’re buying with some room to manoeuvre in your budget.”
Other advice she offers aspiring home owners is to not over-extend themselves when purchasing property.
“It is financially responsible to leave room in the budget for repo rate increases, but increases at this level are untenable for salaried households living on fixed income.”
Tony Clarke, managing director of the Rawson Property Group, recommends existing homeowners also take a careful look at their budgets to reduce the impact of rising interest rates.
“Now is definitely the time to start putting every spare cent into your bond if you have one. Cut back on unnecessary expenses, avoid expensive short-term debt, and focus on chipping away at the capital amount of your home loan. The more you manage to do this, the less interest you’ll accrue on your loan over time.”
That, he says, can make “a very real difference” to the overall cost – and security – of your investment if interest rates continue to climb.
For those already scraping the bottom of their financial barrels, however, Clarke says different strategies may be required.
“If you’re concerned about future affordability, the first thing you need to do is talk to your lender. Most banks are very open to finding mutually beneficial solutions to assist bondholders over tough times – as long as they’re given fair warning. This is not one of those situations in which it’s better to ask forgiveness than permission. Options tend to shrink dramatically if you’ve already defaulted on your loan.”
Creative letting solutions like Airbnb or private lodgers can also be used to ease homeowners’ temporary cash-flow issues.
“Existing rental investors who find themselves unable to cover rising costs, however, may need to consider liquidating underperforming units,” he says, adding: “Higher interest rates can actually boost rental markets, as fewer tenants become buyers. But rental income and property costs don’t always escalate at the same pace. Landlords struggling to make ends meet may want to refocus their property portfolios on units better able to produce sustainable income. Of course, this isn’t always an obvious or easy decision to make. Consulting with a professional rental agent can be extremely helpful.”
As for prospective buyers hoping to secure a new bond in the coming months, he says there is no reason to put a pin in well-laid plans.
“Banks’ lending criteria will be getting stricter, but they’re also likely to have fewer applicants as affordability declines. That means there could be a bit of a bunfight for really strong candidates armed with excellent credit records and reasonable deposits. This is definitely one of those times getting prequalified and having a bond originator negotiating for you can pay real dividends when offers hit the table.”
Qualified buyers will likely be “spoiled for choice” as tight finances drive more properties to sale.
Buyers over this period should, however, make use of the various online affordability calculators to work out what the repayments will be at higher interest rates before going ahead with a purchase, advises Adrian Goslett, regional director and chief executive of RE/MAX of Southern Africa. He also recommends that real estate agents start building up some cash reserves for if and when the real estate market does become less active.
“It is difficult to say what lies ahead for the local housing market. My advice is to prepare for the worst and to expect the best.”
He adds: “We’re in a volatile period, for sure, but property is known for its ability to weather volatility. The market has faced far worse than this and come up swinging on the other side. There’s no reason to believe this challenge will be any different.”-iol
