After almost two years of historically low home-loan borrowing costs slashed by 30% in the first half of 2020, we are now back in a hiking cycle.
The latest rate adjustment means you are now paying an extra 1,25% on your home loan with a further 1% in hikes expected this year.
Samuel Seeff, chairperson of the Seeff Property Group, said despite the rate hikes, it’s still a great time to become a homeowner. Even with the expected further 1% to come this the year, he expects we’ll still end at a level below the pre-pandemic rate, which is great news for home buyers.
That said, homeowners and buyers will need to adjust to higher home loan repayments and further costs hikes, including increased food and fuel prices.
For middle-class homeowners and prospective 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.
What can prospective buyers do to prepare for the higher interest rate?
Seeff said the expectation of a further 100 basis points means buyers must budget for an extra R500 to R1 000 per month on a home loan of between R750 000 and R1,5 million.
Buyers could also look to purchasing below their budget to create a financial buffer. Instead of buying for R750 000 (with a full bond) at a monthly cost of R6 400, you could opt for R690 000 at around R5 900, resulting in a monthly saving of about R500.
Instead of buying for R1,5 million at a monthly repayment of about R12 800, you could opt for R1,35 million at around R11 500, and create a buffer in your budget of around R1 200.
Investing a deposit is another way to bring down monthly repayments and create equity and a financial buffer.
What can homeowners do to prepare for interest rate and cost hikes?
You will need to budget for a further estimated R500 to R1 000 per month on a bond of between R750 000 and R1,5 million to accommodate the expected further rate hikes. If you have additional debt, you will need to take that into account on top of needing extra for higher food, fuel and 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 you need to budget for; then look at where you can cut and save.
Basic lifestyle and habit changes could save you between R500 and R2 000 a month. For example, doing your own cleaning and gardening is not just a great workout, but can save R350 to R3,000 a month.
Look for ride and petrol sharing opportunities for your daily commute; it will not only make trips more enjoyable, but could save you R500 to R1 000 a 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 number 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.
Financial prudence can also create savings. Focus on paying off your debt and check that you are not over-insured or being charged for extras you do not need.
