Homeowners buckling as bond repayments increase by R600m in 2 years

Homeowners who purchased property in 2021 when interest rates were low, are now struggling to keep up with their bond repayments. Picture: Alex Green/Pexels

Homeowners who purchased property in 2021 when interest rates were low, are now struggling to keep up with their bond repayments. Picture: Alex Green/Pexels

Published Aug 22, 2023


More homeowners are putting their properties up for sale, renters are not keen to buy, and those who are keeping their homes are struggling to afford the bond repayments.

It is a tough market; rising interest rates, increased electricity prices, higher living costs, and a weakening currency are putting consumers – and homeowners – under growing pressure.

Since taking out bonds in 2021, 150,000 homeowners are now paying an extra R600 million to service their bonds. This equates to an average of R4,000 a month in just two years.

Some estate agents are reporting a drop in sales and buyer enquiries, as well as an increase in properties being put up for sale, says Hayley Ivins-Downes, head of digital at Lightstone Property. Property economists say property prices and activity were negatively affected in the second quarter of 2023 as interest rate hikes began to bite, and a credit report pointed to South Africa entering this year with a quarter-on-quarter increase in defaults and overdue balances for the first time since Covid.

The picture being painted, she says, is one of increasingly tough conditions for homeowners in South Africa.

The same can be said, however, for those in the United Kingdom who are also facing pressure from interest rate hikes. Media reports suggest house prices there will fall by 12 percent from peak-to-trough by the end of 2024, and there is little hope for a strong recovery as buyers will continue to face higher real costs of borrowing for the foreseeable future.

In July, The Telegraph reported that UK house prices will fall by 6.6 percent this year, and then by a further 4.9 percent next year.

“After that, S&P Global Ratings expects the market will stagnate, with growth of just 1.4 percent and 3 percent across 2025 and 2026 respectively,” it stated.

Ivins-Downes says borrowers in some European countries and the USA are protected from interest rate shocks by long-term loans.

Interest rates in South Africa

The graph below shows how the repo rate has been rising in recent months, although its full impact is yet to be felt.

Graphic: Lightstone Property

“Lightstone’s analysis reveals that 155,000 homeowners who bought and bonded properties in 2021 are collectively paying R600m, or 40 percent, more per month to service their instalments,” she says.

Graphic: Lightstone Property

Of the 155 000 bonds issued in 2021, 46 percent were to first-time buyers (FTBs).

Graphic: Lightstone Property

Lightstone data shows that sectional schemes account for 27 percent of the increased instalments, and Ivins-Downes says there are developments that will be at risk if affordability leads to defaults. Naturally, new developments are more affected as they have a greater proportion of bonded sales which took place when interest rates were low.

She explains that there are 16 schemes where more than 50 percent of the development’s units were bonded in 2021 – with the volume bonded in 2021 exceeding more than 50 units. This amounts to 2,000 bonds with a combined monthly instalment increase of R4.5m.

SA developments and homeowners under pressure

Lightstone shares these examples of the kind of pressure some South African homeowners are currently facing:

  • A development in Centurion, where 405 out of 520 properties were bonded in 2021, at an average bond value of R660,000. On average, bond payments went up from R5,200 to R7,200 a month, which equates to homeowners having to find more than R800,000 a month, or R10m a year, combined.
  • Homeowners at another development in Pretoria must find another R500,000 in bond payments per month or R6m a year. Of the development’s 369 units, 267 were bonded during 2021, at an average of R676,000.
  • In Roodepoort, almost all units – 139 out of 144 – were bonded in 2021. This group may struggle with affordability as instalments have soared from R3,500 a month to R4,800 a month.

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