Interest Rate Hike: Load the Rocket and let’s shoot-out to another planet … Or not yet?

While the property market experienced a well-deserved (mini) sonic boom amid the pandemic, many are wondering whether the recent repo rate hike will pull the breaks on the housing market’s thrusters.

Getting on the VIP list

Following a slew of unprecedented interest rate cuts in the first months of the Covid-19 pandemic, the property market opened its doors to buyers who before would have had slim chances of slipping in. This is especially true for first-time buyers who were the VIPs of a party they wouldn’t even have been invited to a few months before, due to the added benefit of a lower transfer duty threshold.

But now with the recent hike in the repo rate, the prime lending rate has sky-rocketed to 8.25%.  Understandably, this is leaving homeowners with the need to reassess their budgets as they recalculate their monthly bond payments which are being affected by the increases. And those who were about to enter the market are left wondering whether their invites will still get them passe the bouncer.

Let’s all take a breather

While the interest rate hike will undoubtedly affect repayments, homeowners can rest assured knowing that the increase is nowhere near the 11.5% interest rate peak the market experienced in 2008 as the market collapsed.

To illustrate the difference, let’s calculate the monthly repayments on a R2 million bond.

• In 2008, amid the market’s collapse, the prime lending rate was 15.5% and the repayment on a R2 million home loan would have been more than R27,000. 

• With the current prime lending rate of 8.25%, the repayment on the same home loan will be close to R17,000.

That’s R10,000 less than it was when the pawpaw hit the fan in 2008.

Just check the list, my name should be on there

Fortunately, the increased rates have not affected the bank’s willingness to approve loans, with some banks still offering loans of up to 105% for qualifying applicants. Buying activity also remains in top form, especially in the mid-level price range. While the interest rate hike may affect buyer activity in the short term, homes priced at fair market value will be much easier to gauge within an economy that is stabalising once more. What it all boils down to is that the galaxy of real estate possibilities is still out there, ready for new investors, existing explorers and adventurers looking to enter the market for the first time. So get in touch with us, and let’s see where the ride is taking us next.