Picture: Kindel Media/Pexels
Picture: Kindel Media/Pexels

Property experts explain what repo rate hike means for homeowners

By Bonny Fourie Time of article published Nov 18, 2021

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The moment that many home owners and prospective buyers have been dreading for months arrived on Thursday when the Monetary Police Committee (MPC) increased the repo rate to 3.75%.

This 25 basis point hike now means that owners with mortgages will be paying a little more on their monthly bond repayments.

The prime lending rate also increases to 7.25%.

The consolation, however, is that interest rates are still low. In addition, property experts do not believe that this increase will have too much of an effect on the property market as a whole.

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Through all the months of record-low interest rates, aspiring and new home owners have been warned to leave room in their budgets for any rate increases, which were always inevitable. And now, Adrian Goslett, chief executive of Re/Max of Southern Africa says he hopes they heeded this advice as “tough times” are ahead for those who have not.

However, he is hopeful that the hike will not have a profound effect on property market activity generally.

“My hope is that this interest rate hike will just bring activity back to normal volumes,” he says, explaining that the “hyper activity” – which saw the agency’s reported sales growing by 45%, and property registrations up by 75% for the year until September – was largely a result of the low interest rates and lifestyle changes brought about by the pandemic.

“Now that the economy has been allowed to open up further and vaccination rates are increasing, the hope is that we’ll see an end to the rising unemployment rates. The housing market is very closely linked to how well the greater economy is performing, so we remain hopeful that these factors will contribute towards greater economy stability, especially now that interest rates have been raised.”

For South Africans who are still looking to buy a property, Goslett says there will always be opportunities in any market.

Leadhome chief executive Marcél du Toit too believes that the increase will have “little effect” on the country’s already bullish residential property market, as the prime interest rate is still significantly lower than it was than 12 to 18 months ago.

“The property market is in an extremely positive place right now.”

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The agency’s figures show that not only were October sales up by more than 50% in 2021 compared to October 2020, but over the same period the average number of days taken to sell a home reduced from 84 to 48 days.

“Positively, November has seen the momentum continue...The activity in the big metros is pretty much back to pre-Covid levels, and banks are still lending aggressively, with average bonds in October 0.2% below prime.”

He adds that the sentiment from the market is “upbeat”, and there is “renewed confidence in property as a long-term investment and a vehicle to building wealth”.

“People clearly feel more secure in their jobs and their incomes, and as business has become more sustainable, it’s removed the ‘fear factor’ from investing.”

Echoing this, Andrew Golding, chief executive of the Pam Golding Property group, says that while there remain variances in activity and demand across various regions, cities and towns the agency reports sustained volumes of sales transactions nationally, underlining ongoing consumer confidence in home ownership.

Still, despite the fact that it is widely acknowledged that interest rates need to start normalising soon, he notes that there are concerns that raising interest rates now may hamper the country’s still fragile economic recovery.

“So today’s decision by the MPC to increase the repo rate to 3.75% is disappointing for first-time home buyers and those with existing mortgages.”

The hike may be disappointing, but Bruce Swain, chief executive of Leapfrog Property Group, says it was “not unexpected”.

“We've enjoyed a record-low interest rate for a while now but it was never going to be a sustainable, long-term arrangement.”

The decision will, however, “certainly have an impact on affordability when it comes to property ownership, and will necessitate a more stringent and frugal approach to managing household finances”.

Carl Coetzee, chief executive of BetterBond agrees that the hike was expected. It is also no cause for alarm.

“We know that interest rates have to normalise as our economic activity returns to pre-pandemic levels, and inflation starts to rise. But we understand too that this will be a gradual increase with the

prime lending rate sitting comfortably below double digits for a while yet. With a prime lending rate of 7.25%, we can look forward to further positive activity in the housing market in 2022.”

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