On the face of things, the recent interest rate hike isn't going to make that much difference in the lives of South Africans. After all, the increase of 25 basis points will require that those with a bond of R785 000 pay just an additional R127 a month on their loan.
It really doesn't sound that much at all and indeed, many homeowners won't even notice the difference. However, there are undoubtedly those who are already stretched to their financial limit and the rise, which translates to R1 524 a year, could have a serious impact on their lives.
Buyers who are entering the property market for the first time may also be affected.
"The difference for first-time buyers will be R98 per month on the average home loan of R600 000 which is currently being approved in this sector of the market," says BetterLife Home Loans CEO, Shaun Rademeyer.
"The increase of 25 basis points is the first since July 2014. It takes the repo rate to 6 percent and the variable home loan interest rate to 9,5 percent. It will thus push up the minimum monthly instalment on home loans by R16 for every R100 000 borrowed."
Of course the hike will affect repayments on all loans, which could impact on an applicant’s ability to qualify for a home loan. It's logical to assume that existing homeowners are far more likely to have funds available for a deposit, given that the sale of a home usually ensures a profit. First-time buyers are not always in the same position and as such will often apply for a 100 percent loan. While the idea of buying something which doesn't require any form of upfront payment may be appealing, Rademeyer advises that first-time buyers try and save a deposit of at least 10 percent of the purchase price. This won't only make it easier to qualify for a bond, he says, but will also give them some financial leeway if the rate continues to increase, as it is expected to over the next two years.
It is always advisable to keep debt such as clothing accounts, credit cards and the like to a minimum - this won't only have an impact on a bank's decision as to how much they are willing to lend, it will also help reduce monthly expenses.
Rademeyer adds that first-time buyers are possibly going to find it more difficult to qualify for home loans.
“New buyers will no doubt find it more difficult to qualify for home loans, even if they are able to borrow at prime,”
he says.
“The household income requirement for the average loan will rise from around R24 000 per month to around R24 400 – a R400 a month increase that may be difficult to achieve when the repayments on other debts have now also been increased and wage increases are low.”
The message is pretty clear. Those who own property are going to have to tighten their belts a notch in order to meet the rise in monthly bond repayments. And first-time buyers intent on purchasing a home are going to have to make certain sacrifices and cut down on unnecessary expenditure in order to raise the finance needed.
