Recently, the SA Reserve Bank has increased the repo rate by 50 basis points, taking it to 6.75%. Repo rate refers to the rate at which the central bank of a country lends money to commercial banks in the event of any shortfall of funds. This is not good news for first time home buyers, as it makes obtaining credit more difficult.
According to Sameul Seeff, the Seeff Properties Chair, the market is going to get a lot tougher for home buyers and basic living and property costs will be climbing. He also added that the average price growth will deteriorate further.
Residential housing markets and bond repayments:
It has also been said that this recent rate hike will also negatively effect residential housing markets due pre-existing problems of financial strain and rising debts and living expenses. This lack of affordability is a major problem. It was pointed out by Kay Geldenhuys, manager for property finance processing at bond originator Ooba, that the repayment on a R1m home loan over a 20 year period will now cost the homeowner an additional R331 a month, and furthermore, on a 20 year home loan of R1m, the monthly installment has risen by R1 138 per month since January 2014.
Effects on property speculation:
According to John Loos, household and property sector strategist at FNB Home Loans, property speculation will also be effected by this rate hike, as “there is little room for speculation in the housing market by speculators wishing to use cheap credit to make a quick capital gain”. He suggests that SARB continue to increase their interest rates, but they should do so slowly.
When it comes to buying homes, people need to buy within their means in order to absorb any potential interest hikes like the one mentioned.
All in all, home buyers need to be very careful when attaining home loans as these interest hikes can effect affordability greatly. In order to compare the various South African home loan options, use LikeMoney’s comparative platform to see what others are saying.