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
    • 17 Nov 2017
      FWJK has announced the launch of its latest residential brand, the Lil’ Apple, which will be launched simultaneously in two developments in Cape Town and Umhlanga totaling 600 apartments. The Lil’ Apple is set to be a brand of FWJK’s New York style apartments which will be rolled out nationally.
    • 17 Nov 2017
      It’s been a tumultuous year on many fronts, with socio-political uncertainty setting the tone for much of South Africa’s economic activity yet despite this and seemingly counter-intuitively, the residential property market has held up well.
    • 17 Nov 2017
      The EAAB (the Estate Agency Affairs Board) recently claimed that around 50,000 illegal estate agents could currently be operating illegally.
    • 16 Nov 2017
      Penthouses are synonymous with New York – characterised by high-rise living that is decidedly luxurious and spacious. While exclusivity comes at a price, you can still create a “penthouse” look and feel in your existing apartment or even the upstairs bedroom of a double storey house with some clever design changes and styling touches.
    • 16 Nov 2017
      The area has long been popular with kite surfers and, with escalating property prices in Cape Town itself, is increasingly in demand with home owners who work in town, but are looking to invest in more affordable properties.
    • 16 Nov 2017
      Cape Town’s popularity as a world-class tourist destination has resulted in a spike in the number of homes available for holiday lets and fuelled investor demand for sectional title units with short term rental potential.
    • 15 Nov 2017
      Sappi, one of South Africa’s oldest global companies and a leading global supplier of sustainable woodfibre products, has moved its global and regional headquarters to a new site on the corner of Oxford and 14th Avenue in Rosebank.
    • 15 Nov 2017
      There’s an old saying in real estate that you should seek to make a profit when you buy, not only when you sell – and a large part of succeeding at that endeavour is buying a home in an area with desirable features that will enhance the resale value of your property.
        
    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