Today’s interest rate hike announcement has increased the repo rate by 75 basis points to 6.25%. This marks the second 75 basis points-hike and the fifth increase in the prime lending rate this year – pinning the interest rate at 9.75%.
However, Rhys Dyer, CEO of ooba Group argues that increases such as these are to be expected following the historically low interest rates offered during the COVID-19 pandemic period. “Rates are simply returning to ‘normal levels’, but the good news is that strong competition between banks for home loans means that prospective homeowners will still benefit from attractive interest rate discounts when shopping around for a home loan. Our statistics for August 2022 show that ooba achieved an average interest rate discount of prime less 0.32% for our customers – 18 basis points lower than August 2021’s prime less 0.14%.”
Interestingly, ooba’s trend analysis shows that first-time homebuyers are responding to the rising interest rates by opting for a longer term home loan to improve their affordability. “There’s a sharp uptick in 30-year mortgages by first-time homebuyers – now at 26% of all home loans processed by ooba in Q2 ‘22 versus 16% in Q2 ’21, indicating the resilience of this market segment.”
Doing the math, Dyer adds that the monthly repayment on a home loan of R1 million at the new interest rate of 9.75% over a 20-year term will increase by R488 while a R1.5 million home loan will increase by R732. “This is where financial education and financial wellness come in. Budgeting and cutting down on unnecessary expenditure go a long way to ensuring that homeowners can still cover their monthly bond repayments.”
Despite the impact that a weakened economy has on consumers, South Africans continue to move and invest in property, driven by homeownership preference, semigration and relocation due to a new life stage (e.g. downscaling and retirement etc). “The Western Cape continues to show the most promise as the investment and semigration region of choice, receiving the most attractive interest rate discounts and the highest approval rates,” he concludes
