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What the rate hike means for home owners

Nov 22 2018 20:30
Carin Smith

For home-owners with bonds, the interest rate increase will add at least R16.60 per R100 000 borrowed to their monthly repayment, according to BetterBond.

"So, on a 20-year loan of R1m, for example, the monthly instalment will rise by at least R166 and possibly more, depending on the current interest rate that the borrower is paying," says BetterBond CEO Rudi Botha.

"And the interest rate decision, which will see the repo rate rise to 6.75% and the prime rate rise to 10.25%, will also mean higher monthly repayments on every other form of debt, including car finance, credit cards, store accounts and personal loans."

Dampened confidence

At a time when the economy is very weak, the decision is likely to dampen confidence in the property market further, sustaining the gradual correction in the market, according to John Loos, property sector strategist at FNB Commercial Property Finance.

"The property market is likely to see confidence levels deteriorate. Although one 25 basis point rate hike makes little difference in rand terms, it comes at a bad time, given that SA is into the seventh year of broad economic stagnation, and the property market has been gradually feeling increased pressure," said Loos.

"The rate hike decision, in the current weak economic environment, is thus likely to keep property values declining in 'real' terms - 'real' referring to property price growth adjusted for general economy-wide inflation."

In the view of Dr Andrew Golding, chief executive of the Pam Golding Property Group, it would have made more sense to have held the repo rate unchanged this time around.

"A pause in the repo rate cycle would have helped stimulate economic confidence and provided some relief to consumers – particularly at a time of year when many are looking ahead to the holidays and planning for the year ahead, as well as any home relocations due to a change in career or lifestyle," said Golding.

He added that there are still inflation risks which may incline the MPC towards continuing on a modest hiking cycle.

"It would, therefore, be wise for home buyers – particularly first-time purchasers – to factor this in along with the other costs associated with acquiring residential property," advised Golding.

Stuart Manning, CEO of the Seeff Property Group, said despite Thursday's 25 basis points hike, the interest rate is still at one of its better levels in years. The Seeff Group does not expect it to make much of an impact on the property market.

"The bigger impact is coming from the socio-economic environment, and only once some of these are resolved are we likely to see the next upward phase," said Manning.

In his view, once a general election in SA in May is out of the way, and if a mandate to continue reforms is reinforced for President Cyril Ramaphosa, it will likely translate into more positive sentiment, which he regards as critical for the economy and the property market.

Conditions still favourable

"Conditions remain favourable for buyers who are able to find good value, given the flat price growth and rising stock levels, but don't wait too long," said Manning.

He explained that all economies and property markets go through cycles of ups and downs.

Mike Greeff, CEO of Greeff Christies International Real Estate, anticipates the effects of the interest rate hike will probably be felt most by the lower and middle sectors.

"Lending institutions will in all likelihood implement more stringent lending measures, which would most likely have a dampening effect on new bond applications from first-time buyers," said Greeff.

"The rate hike is expected to contribute to the slowing of the property market in the country...The increase should be seen as a proactive measure rather than a punitive measure, and any future hikes will be restrained rather than harsh."

Adrian Goslett, regional director and CEO of RE/MAX of Southern Africa, said for those who are delaying entering the property market owing to the possibility of interest rate hikes, he would advise that they reconsider.

"Over the course of a twenty or thirty year loan term, interest rate changes are inevitable and cannot be avoided. Waiting for ideal market conditions will delay your plans of entering the market, thereby delaying the time it will take for you to pay off your home loan and minimalising the time you'll have living in or renting out a property debt free and reaping the rewards of your investment," advised Goslett.

Jacques du Toit, property analyst at Absa Home Loans, said further hikes in lending rates will put increased financial pressure on the business sector and consumers, which will result in continued subdued conditions across the residential property market.

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sarb  |  interest rate  |  sa economy  |  repo rate  |  property
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