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Homeowners, higher bond repayments are knocking on your door – yes, again

The predicted repo rate increase in July will see homeowners paying more on their home loans. Picture: Rodnae Productions

The predicted repo rate increase in July will see homeowners paying more on their home loans. Picture: Rodnae Productions

Published Jun 23, 2022

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Homeowners must ready themselves for another increase in their bond repayments next month as the SA Reserve Bank (SARB) is highly likely to hike the repo rate by another 0.5%.

Depending on your home loan value, you will fork out either hundreds or thousands more at the end of July if this expectation materialises.

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Given the global inflationary pressures – including the ongoing conflict in Ukraine and rising fuel costs, Carl Coetzee, chief executive of BetterBond, says it is possible that we could see another repo rate hike of 0.5%.

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“SA Reserve Bank Governor Lesetja Kganyago has gone on record to say that a hike of 25 or 50 basis points (bps) is ‘not off the table’ for the next meeting.

“But, that said, the Monetary Policy Committee (MPC) said after the announcement in May, which was the biggest repo rate increase since 2016, that it wants to maintain an accommodative stance if possible, and this includes keeping conditions supportive of credit demand as the economy continues to recover.”

Coetzee says the decision to extend the temporary reduction of the general fuel levy to July 5 could be a sign that efforts are being made to shield consumers from inflationary pressures and price increases where possible.

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“A more moderate repo rate increase of 25bps next month would offer homeowners some respite after May’s significant increase. However, consumers should be mindful that the MPC has also indicated more repo rate increases are likely for the next two years.”

Thanda Sithole, senior economist at FNB, also believes that the repo rate will be increased by 0.5% at the July MPC meeting. This will take the rate to 5.25% and the prime lending rate to 8.75%

“After that, we expect 25bps increments in each of the two remaining meetings this year. That should put the repo rate at 5.75% by November 2022 – which would still be below the 6.50% pre-pandemic level.”

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The reason for this possible July increase, he explains, is that inflation is expected to average 6.3% this year and 5.3% next year, above the SARB's preferred 4.5% level.

“Two-year average inflation expectations had already drifted high above the 4.5% preferred level in the first quarter survey, and further de-anchoring would be more concerning to the SARB. The better-than-expected GDP growth outcome and employment growth in the first quarter could further support the SARB's interest rate normalisation.

“In addition, the more aggressive monetary policy stance by Developed Markets' central banks, particularly the US Fed, could have implications for emerging market currencies, including the rand.”

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This could therefore steepen imported inflation and further influence domestic inflation, prompting the SARB to raise interest rates “even more aggressively than we currently envisage”, Sithole warns.

Absa too expects the SARB to hike the prime lending rate by 0.5% at its next MPC meeting. Echoing Sithole, a spokesman for the Bank says that the repo rate is likely to reach 5.75% by the end of the year, as the SARB adjusts its policy to account for inflationary pressures.

Should the repo rate be increased by 0.5% next month and the interest rate to 8.75%, the Bank breaks down the additional amount you will need to pay for the following home loan values over a 20-year repayment term:

  • R1m – R316.45
  • R1.5m – R474.68
  • R2m – R632.90
  • R3m – R949.35
  • R4m – R1 265.80

If, however, the increase is 0.25%, taking the interest rate from 8.25% to 8.5%, Hayden Giger, channel head at FNB Private Bank Lending, says the increases will be:

  • R1m – R157.57
  • R1.5m – R236.37
  • R2m – R315.15
  • R3m – R472.73
  • R4m – R630.30

In an increasing interest rate cycle, he says it is recommended that homeowners plan ahead.

“You can use various calculators online or on the FNB App to calculate the exact change in your bond repayments if interest rates were to increase. Having this information ahead of time can help you budget effectively and ensure you meet all your financial commitments.”

The Absa spokesman adds that, as interest rates rise, homeowners must account for these in the context of various other expenses related to the increasing cost of living, such as rising fuel prices, electricity costs, and food prices.

“You should therefore plan to absorb the combined impact of these increases and consider paying close attention to living costs and cutting back where possible in areas such as entertainment, clothing, and travel; and reviewing or creating a budget to track spending and identify opportunities to save.

“Property investors should consider ways to avoid passing on cost increases to tenants and run the risk of losing tenants who currently enjoy a market of competitively priced rentals.”

Coetzee adds: “After more than a year of record-low interest rates, consumers need to look at their monthly expenses and what they can afford as interest rates start to once again increase. Those who have the financial means to do so are advised to pay extra into their bond if they can to reduce the amount of interest payable over the whole loan period. Also, start building a savings buffer so that you have the financial reserves to manage rising prices – fuel, food, and bond repayments – if necessary. Look at your household budget and cut costs to reduce monthly expenses.”

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