Real Estate Investor Magazine South Africa September 2014 | Page 34

HOUSING VIEW

BY MONIQUE TERRAZAS

Interest Rate Increase

What are the effects on consumers and the housing market?

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Bruce Swain
Managing Director
Leapfrog Property Group

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Berry Everitt
Managing Director
Chas Everitt International

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Following the rate hike, the repayment on a R500,000 bond at
prime would increase by R80 per month, but obviously it would
affect all interest-bearing debt as well. Some belt tightening is to be
expected, but we foresee no major impact on house prices or demand.
Homeowners considering fixing the interest rate on their home loan
must weigh up the pros and cons: when rates are high, those with
lower, fixed interest rates benefit from better cash flow. Conversely,
the interest rate could be less than the fixed rate, in essence costing
the homeowner more. There’s no real way to beat the system - the
decision needs to be based on individual circumstances, regardless of
what the MPC decides every three months.

Combined with the interest rate increase in January, rates are now
0.75 percentage points ahead of where they were at this time last
year. This means higher repayments on everything from home loans
and cars to credit and store cards – and higher food, transport and
utility bills as the suppliers pass on their increased costs. It will
put further pressure on consumers, many of whom are only just
managing to keep afloat at this stage, thanks to hefty cost of living
increases. This will generally prompt consumers to do their utmost to
reduce their debts and free up more of their disposable income, but it
will most likely mean they cannot qualify, under the National Credit
Act, to borrow any more.

Samuel Seeff
Chairman
Seeff

Shaun Rademeyer
CEO
BetterBond

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While it is widely accepted that the economy is heading into a
rate hike phase and this is not unexpected, insofar as housing is
concerned, holding off on a rate hike for a little longer would have
been preferred. Considering that the housing market is finally on
the mend, this hike is just too soon and will certainly do little to
instil investor confidence or encourage economic growth. Already,
consumers have had to absorb the 50-basis point hike of January
and, considering that more than 85% of buyers require home loan
finance, this is bad news for homeowners and buyers. In addition to
an increase in consumers’ monthly bond repayments – often their
single largest expense – there is also a knock-on effect on other credit
commitments and day-to-day living costs.
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September 2014 SA Real Estate Investor

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The rate increase of 0.25 percentage points means the minimum
monthly instalments on home loans will rise by R16 for every R100
000 borrowed. New buyers will no doubt find it more difficult to
qualify for home loans, even if they are able to borrow at prime.
The household income requirement for the average loan will rise
from around R22 700 a month to around R23 200. The banks can
also be expected to apply tighter credit control criteria once again to
ensure that borrowers will not become over-indebted and will be able
to manage their repayments at the higher interest rate level on top
of the higher repayments on any other debts they have. Prospective
buyers would be well-advised to obtain pre-qualification for a home
loan.
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