Know what you can afford as interest rates rise

The South African property market not only survived but thrived during the pandemic and has proven to be a sound investment option, especially during challenging times.

As consumers are preparing for another repo rate hike this month, it's important to note that even if it climbs by 50 basis points to take the prime lending rate to 8.75%, this is still well below the 10% it was before the pandemic.

There are still opportunities for aspirant buyers and investors, notwithstanding the challenging prevailing economic conditions. There is no denying that times are tough with the ongoing Ukraine conflict having an impact on oil and fuel prices and electricity prices have soared.

The South African Reserve Bank Governor Lesetja Kganyago has gone on record to say that a hike of 25 or 50 basis points is 'not off the table' and economists at BNP Paribas have cautioned that we could even see a 75 basis point hike, which would take the prime lending rate to 9%.

Affordability is always a consideration when buying a home, especially in the face of rising interest rates, but the prime lending rate will still be in the single digits and does not allow homeowners an opportunity to invest in property as a long-term investment.

Bond applications for homes of between R2.5 million and R3 million have increased by almost 19%.

Below is an indication of how a 25 and 50 basis point repo rate hike will change your monthly bond repayments:

House price growth has slowed since early 2021 and national house price inflation is currently at 4.46%, according to Lightstone, creating opportunities for buyers to invest in property while the prime lending rate is below 10%. Consumers need to look at their monthly expenses and what they can afford as interest rates start to climb.

Those who have the financial means to do so are advised to pay extra into their bond, if they can, to reduce the amount of interest payable over the whole loan period.

Create a savings buffer so that you have the financial reserves to manage rising prices, fuel, food, and bond repayments if necessary. Look at your household budget and cut costs to reduce monthly expenses. And if you are considering buying a new home, work with a bond originator who can apply to more than one bank on your behalf to negotiate a rate concession that will offset repo rate increases.