Interest rate hike – Bond payment increases you can expect.

The South African Reserve Bank (SARB) has announced a 50-basis point hike, this raises the current prime lending rate from 10.75% to 11.25%.

This recent hike marks the ninth-rate hike since the current hike cycle started in November 2021, bringing it to a total of 425 basis points increase since then.

Rates are now at their highest point since the global financial crisis. The rate hike was higher than anticipated with most analysts expecting 25bb.

The higher interest rates will push up repayments and put pressure on the cost of living and disposable income (although this has been factored in by the market). The higher rate is not ideal however it is still lower than the average of the last 20-30 years.

Some good news:

• Bank lending rates and climate still the best in over a decade  
• Increase in the transfer duty exemption threshold to R1.1 million
• Properties transferred on a monthly basis are ahead of pre-pandemic levels

Some bad news:

• Property prices expected to increase by up to 3.5% meaning after inflation of 7% the property will be worth less.
• The latest rate hike will increase your bond repayment by on average R340 p/m per million rand in mortgage. Therefore if your bond is R3m then you will pay approximately R340 x 3 = R1 020 more per month

Tips:

• Choose a residential property market with growth that outweighs inflation.
• Buy property off-plan to save on transfer costs.
• Invest your transfer savings in an offshore investment for currency protection and safety cushion for your bond repayments.
• Use Bond originators to get the best terms and bond offers.
• Fixed interest rate is an option in a time of rising interest rates, this helps with budgeting.
• Consider subletting for additional income.
• Consider Air BnB for additional income.
• Pay additional amounts into your bond.
• Subdivide your plot for extra income.
• Rather rent instead of buying, rent can only increase at the statutory maximum of 10% per annum.

To sum it up South Africa Prime rate is now standing at 11.25% and homeowners and the like will have to tighten up their budgets to make space for the increase in interest.

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