select
|

Though Times Ahead for the Property Market

The SARBs Monetary Policy Committee has raised the repo rate by 50 basis points taking it to 6. 75% during its first meeting in 2016. The move was expected by most economists based on the growth in CPI from 4.8% in November to 5.2 % in December last year, as consumers battle with rising food and fuel prices as well as a weak rand. 
 
“Any interest rate hike places further pressure on home owners and, as more increases are expected this year it is certain that owners will be placed under building financial pressure”, says Bruce Swain, MD of Leapfrog Property Group.
 
What the Hike Means for Home Owners
 
A quick calculation shows the immediate impact an interest rate hike of 50 basis points has on a home loan of R750 000 at prime (10.25%) over 20 years:

The current monthly repayment of R7056.54 will increase to R7300 – i.e. home owners will need to pay in an extra R243.46 per month. While that might seem like a small amount it adds up: over the twenty year span of the home loan it will lead to an extra R58 430.
 
Here’s another example
 
On a R2 million bond at prime (10.25%) over 20 years the monthly repayment will go from R18 817.45 to R19 466.54 – a monthly increase of R649 – and a total increase of R155 794 over the twenty year period. Naturally these figures will continue to increase as further hikes are implemented.
 
Further Hikes Expected

 
Brett Birkenstock of Overberg Asset Management believes that more interest rate increases are to be expected as the SARB attempts to curb inflation and to protect the rand. “It would seem that we are in for a series of continual hikes in 2016 and my advice to home owners is to tighten their belts where possible and to pay any extra monies into their bonds as and when they can to lighten the load”, says Swain.
 
Should You Fix Your Interest Rate?

 
Home owners often consider fixing their interest rates at the start of a hiking cycle. Swain explains, “Typically I would advise against fixing your interest rate, especially as a new hiking cycle starts. The banks will take future increases into account and as such the rate they’ll be willing to fix won’t be as advantageous as might be hoped for. You might also find the rates dropping again before your rate contract expires – putting you in the position of paying more than the current interest rate dictates.”
 
He goes on to say that the best solution remains to pay any spare money into a bond – as little as R500 month extra can significantly alter the repayment amount and time period, as well as safeguarding the property investment.


  Comment on this Article

  Please login to post comments

Post to my facebook wall
  
2000
Characters remaining


    Latest Property News
    • 19 Jan 2018
      Extending from Randfontein in the west to Roodepoort in the east and including the towns of Krugersdorp and Magaliesburg, the West Rand has a plethora of property available to residents who choose to make this unique area their home.
    • 19 Jan 2018
      When it comes to financial planning, doing the work to ensure you’re prepared for unexpected emergencies is just as important as ticking off your other goals and New Year’s resolutions. The beginning of the year is also the perfect time to review your various insurance policies.
    • 19 Jan 2018
      No surprises at the first Monetary Policy Committee of 2018, as Reserve Bank Governor, Lesetja Kganyago, announced that the interest rates would stay at their current levels.
    • 18 Jan 2018
      The Southern Suburbs make up some of the most popular residential areas in Cape Town, comprising charming groups of suburbs which lie to the south-east of the slopes of Table Mountain. It is seen as the city's most expensive residential neighbourhoods with a choice of various private schools, upmarket eateries, wine estates, beautiful homes and trendy apartments.
    • 18 Jan 2018
      New year, new goals! If you’ve resolved to purchase your first property in 2018, then this 6-step guide from the Rawson Property Group is a must-read. It will help you navigate and simplify what is often be seen as a confusing process of buying your first home – right from the house-hunt to the house-warming.
    • 17 Jan 2018
      While the current property market may still favour buyers, it doesn’t mean that they shouldn’t be well prepared before putting in an offer to purchase.
    • 17 Jan 2018
      Lightstone lists Blair Atholl as the most expensive suburb with an average house price of R11.2 million, followed by Westcliff (R10.5 million), Dunkeld (R9.3 million), Sandhurst (R9.1 million) and Inanda (R7.2 million).
    • 17 Jan 2018
      As it currently stands, there are four main ways in which a home can be bought in South Africa, says Adrian Goslett, Regional Director and CEO of RE/MAX of Southern Africa, who adds that deciding in which legal entity to purchase the property is not a decision that should be entered into lightly, as each has its pros and cons.
        
    X
    Subscribe to the MyProperty Newsletter

    Name  
    Last Name  
    Email Address  
    Email Frequency
    select
    X
    Share this Page

       
    For Sale Property
    Rental Property
    More Options
    About
    Connect with us
    FEEDBACK