The pinging on homeowners phones has begun: Due to a 0.75% increase in interest rates the new instalment on your R2 million home loan account will be… R3 700 more than it was in November last year!
Yes, you heard right. That is the extra amount of money someone paying off a R2m bond has had to find in less than a year amid diminishing disposable income and static salaries.
Giving us the calculation on a R2m bond repayment, Lew Geffen Sotheby’s International Realty CEO Yael Geffen says property owners and consumers in general are now “at breaking point”.
Since November last year the SA Reserve Bank has hiked rates by 275 bps, says Dr Andrew Golding, chief executive of the Pam Golding Property Group.
the hike is disappointing for existing homeowners with mortgages, who have already had to contend with the economic impact of severe load shedding, high fuel and rising food costs, and increasing electricity and other municipal tariffs, says Golding.
Geffen says the rate increase in July (also 75 basis point) was the highest single rise in nearly 20 years and that “put massive pressure on South Africans, who at the time were already dealing with huge increases in the basic cost of living and the previous rate hikes imposed earlier in the year”.
“Now another hike of 75 basis points … means people on fixed incomes are going to start losing their homes.”
The latest hike means the prime lending rate in South Africa has increased from 9% to 9.75%.
Tony Clarke, MD of the Rawson Property Group concurs, saying the rapid climb by 75 basis points will “doubtless push some homeowners past the point of no return if their finances are not in order”.
“We do expect to see an increase in distressed sales by homeowners no longer able to service their debt,” he says. “This is always a heart-breaking situation, but it doesn’t have to be a life altering financial loss".
All property heads urged property owners to talk to the financial institutes holding their bonds to see if an arrangement can be reached before selling their homes, and if they did sell, to downsize to another with the guidance of an estate agent.
Samuel Seeff, chairman of the Seeff Property Group says buyer hesitancy is also emerging in terms of the impact of the hiking cycle on the property market. “We are beginning to see a two-paced market emerge. While demand is still high on the one side, buyer hesitancy is increasing with deals taking much longer on the other side”.
Aside from the spiking interest rate, Seeff says the deteriorating conditions in the country are not helpful. The power outages combined with poor economic data, and macro events including the Ukraine crisis could be compounding buyer hesitancy.
While everyone understands the use of interest rates as one of the tools to help contain inflation, Geffen says “by dragging its heels for 15 years to fix the problems at Eskom, the government is costing the economy an estimated R4 billion a day, according to Business Unity SA figures. The private sector is losing ground every day and the blows just keep coming".
Geffen says the property sector is a significant contributor to the economy, and while the government needs to hedge against inflation, it also needs to protect homeowners.
High Street Auctions director Greg Dart agrees, saying: “The fact is Eskom is bleeding the economy of billions of rands per day and consumers simply can’t deal with another cost-of-living increase at this stage.”
inflation is eating into many households’ disposable income levels, which, “paired with the higher instalments on any debt repayments, could lead to financial difficulties over time, especially if interest rates continue to climb”, says regional director and ceo of RE/MAX of Southern Africa, Adrian Goslett.
Like the others, he urges homeowners that before it gets to this point, to look for ways to cut back on expenses and possibly even reach out to estate agents to explore the option of downscaling “if it will provide them with greater financial security”.
“Keep on top of your expenses to make sure you do not fall behind on the higher debt repayments in the coming months,” says Goslett.
Clarke agrees: the first step for struggling homeowners is to approach lenders to discuss options for relief. Should these efforts fail, however, he strongly advises selling earlier rather than later.
“You really want to avoid being pushed into a rushed sale or, heaven-forbid, having your property repossessed,” he says. “Making the responsible choice to cut your losses early on enables you to take a little more time and work with an experienced realtor to recoup as much value from your property investment as possible.”
While things are bad, they are predicted to get better, but a bit worse first, believes FNB’s John Loos with the bank predicting a stabilising of rates at 10.25% by next year when the rate hike cycling should come to an end.
Golding agrees, although his peak calculation sits at 10.5%. “It is hoped that we may only see two further smaller rate increases, bringing the prime rate to 10.5% and an end to the current tightening cycle.”