A home is a serious investment. It's important to have a handle on all the factors that can affect your real estate journey. Interest rate changes, in particular, have a huge impact on real estate, with implications for buyers, sellers, and homeowners. As the country moves into a cycle of interest rate hikes, Century 21 South Africa provides a helpful guide to ensure you weather the storm.
May 2022 interest rate hike
Effective from 20 May 2022, the South African Reserve Bank (SARB) hiked the repo rate by 50 basis points to 4.75%. The steepest increase since 2016, it has pushed the prime lending rate of banks to 8.25%. Depending on whether you're an investor or borrowing money to finance a home loan, the interest rate fluctuations will have an impact.
How the hike impacts buyers
Interest rate hikes will impact how much you pay on the monthly repayments of your bond. However, you shouldn't be discouraged from attaining your dream of homeownership. Residential property remains a great investment and banks are offering competitive interest rates on home loans. As a first-time buyer, you can even qualify for subsidies like the Finance Linked Individual Subsidy Programme (FLISP).
Buyers can also benefit from the current market conditions, with plenty of stock options available. With some homeowners feeling the pressure of higher interest rates, there may even be increased urgent and/or distressed property sales that can help you lock down a great deal.
During the lockdown, many took advantage of the lower interest rate cuts to purchase property. Now, with the latest interest rate hikes and potential future hikes, buyers should consider their finances carefully. Do factor in these increases when applying for a bond.
When buying a home, it pays to put down a large deposit towards your property so your monthly loan repayments will be as low as possible. Also, be sure to work with a bond originator who can help you secure the most competitive pricing.
How the hike impacts sellers
While some buyers may be apprehensive about the rising interest rate, it still remains a good time to sell your property. Current market conditions are empowering buyers to take a step on the property ladder. Ensure your property is priced correctly so you can sell your home in the shortest time possible. Having an experienced property practitioner do a valuation will help you set an appropriate price.
Affordability is a key factor for potential buyers. However, their decision is also based on other considerations such as features, location, and lifestyle. By marketing your property attractively, you can ensure an easy sale.
How the hike impacts homeowners
When your home loan is registered, you have the option to keep a variable interest rate or apply for a fixed interest rate. If your home loan isn't fixed, you can expect your monthly payments to increase. For example, consider a homeowner with a bond of R1 million over 20 years, and a prime rate of 8.25%. They would pay R312 extra, an increase from R8,209 per month to R8,521.
Don't panic if you are unable to meet your monthly payments. Banks want you to maintain control of your asset, so let them know you're experiencing financial difficulty ASAP. Depending on your circumstances, you can enter into a new agreement. This can include payment holidays, restructuring payments, agreeing to interest-only payments for a time, or having you pay lower instalments over a longer period.
If you have a large home, consider renting out a flatlet or room to tenants. You can use the additional income towards paying off your bond. If this isn't an option, you can consider selling your property and downsizing to a home that fits your budget.
Navigate the interest rate hike
With our finger on the property pulse, Century 21 South Africa can help you overcome the impacts of the interest rate hike. Chat with our friendly property professionals across our branches about your goals as a homeowner, home buyer, or seller. We're here to help! If you're looking for a bond, we are partners with ooba, the home loan comparison service, which can help you secure one with the lowest interest rates possible.