After almost two years of historically low home loan borrowing costs – slashed by 30% in the first half of 2020, South Africa is now back into a hiking cycle, with a further increase of 1% expected this year.
Even with the expected increase, Samuel Seeff, chairman of the Seeff Property Group says it is still a great time to become a homeowner, and expects “we will still end at a level below the pre-pandemic rate which is great news for homebuyers”.
That said, homeowners and buyers will need to adjust to higher home loan repayments and further costs hikes, including food and fuel.
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For middle-class homeowners and prospective property buyers, the 1.25% rate hikes mean an extra R600 to R1 200 per month on mortgages of between R750 000 and R1.5 million – depending on the rate and repayment period.
How buyers can prepare for the higher interest rate?
Seeff says the expectation of a further 1% increase this year means buyers need to budget for an extra R500 to R1 000 per month on a home loan of between R750 000 and R1.5 million. To do this, they could look to purchase below their budget to create a financial buffer.
“Instead of buying for R750 000 (with a full bond) at a cost about R6 400 per month, you could opt for R690 000 at around R5 900 per month, resulting in a saving of about R500 a month.”
And instead of buying for R1.5 million at a repayment of about R12 800 per month, you could opt for R1.35 million at around R11 500 per month and create a monthly buffer in your budget of around R1 200.
Investing a deposit is another way to bring down your monthly repayments and create equity and a financial buffer, he adds.
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How homeowners can prepare for the rate hikes
“If you have additional debt such as a credit card and car loan, you will need to take that into account on top of needing extra budget for the higher food, fuel and other household expenses.
“Start by relooking your monthly expenses. Draw up a schedule of all income and expenses. Add a column with the potential additional costs that you need to budget for. Then, start looking at where you can cut and save.”
Financial prudency can also create savings. Focus on paying off your debt and check that you are not over-insured or being charged for extras that you do not need.
Basic lifestyle and habit changes, Seeff says, could save you anything between R500 and R2 000 per month depending on your household. Doing your own cleaning and gardening is not just a great workout, but can save R350 to R3 000 per month for a basic household.
Other lifestyle changes, he suggests, include:
- Look for ride and petrol sharing opportunities for your daily work commute. It will not only make the trips more enjoyable, but could save you R500 to R1 000 per month depending on your needs.
- Cook in bulk over weekends and freeze the meals. Simply warm in the microwave and save time, dishes, and put R500 to R750 per month back into your budget. Only clean when you need to and reduce the amount of cleaning products used.
- Help the planet and your budget by using energy-efficient globes and switching off as much as you can. Install a solar geyser or use a geyser blanket and you could potentially save R500-plus per month.
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