The Impact of the Rising Interest Rate on Bond Repayments

After a historic drop in the repo rate, with the prime lending rate at a five-decade low of 7%, many South Africans became first-time buyers as their affordability increased and home financing became more accessible. After yesterday's repo rate increase, prime lending is now at 9.75%, increasing bond repayments for the sixth time in 10 months and causing potential first-time buyers to exercise more caution when entering the market.

At Greeff Christie's International Real Estate we maintain a firm foothold on the market, so we anticipated this and have been preparing buyers for an increase in prime lending as the South African Reserve Bank (SARB) raises interest rates to compensate for inflation, which surged to a 13-year high at the end of August.

"We always endeavour to give buyers and sellers a realistic picture of the market and the direction it is headed in. Buyers should evaluate their range of affordability and ensure they can remain comfortable paying their bond at both the lower and higher ends of that range after factoring in the interest rate, as well as any possible increases," says our sales director, Tim Greeff. "An additional upside is that banks are still offering competitive rates and are open to negotiating a fixed interest rate for an agreed-upon period, if you prefer to budget with 100% accuracy."

According to Betterbond, a prime lending rate of 7% meant that buyers could afford 30% more than they could previously, paying R7 753 on a bond of R1 million over 20 years and saving almost R2 000. At the current lending rate of 9.5%, that saving has slowly disappeared with homeowners now paying R9 485 per R1 million over 20 years, an increase of R1 732 during this current period of high inflation and rising fuel, food and electricity costs. Despite this adjustment, interest rates are still below pre-pandemic levels and as always, real estate remains one of the most positive long-term investments that one can make.

Repeat buyers and investors were prepared for this increase and took advantage of the lower lending rate, upgrading to larger, more comfortable homes. Many embraced the semigration trend, moving away from the city and its surrounds to coastal towns, which we can attest to with our significant property sales in scenic areas such as the Garden Route, Whale Coast and False Bay.

Regardless of more adjustments being anticipated, it is still a great time to invest in property, as long as you consider your affordability and stay mindful of the fact that the interest rate is likely to increase again come the SARB Monetary Policy Committee's final meeting for 2022 at the end of November.

Sources: Betterbond,  South African Reserve Bank (SARB), Statistics South Africa