The South African Reserve Bank (SARB) has announced a 50 basis point hike, taking 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, totalling 425 basis points over the period.

Rates are now at their highest point in 13 years (June 2009), when the fallout from the global financial crisis weighed on the local currency.

The rate hike was higher than market expectations, with most economists and analysts anticipating a 25bp hike.

“Economic and financial conditions are expected to remain more volatile for the foreseeable future. In this uncertain environment, monetary policy decisions will continue to be data-dependent and sensitive to the balance of risks to the outlook,” said Reserve Bank governor Lesetja Kganyago.

Chairman of Seeff Property Group, Samuel Seeff, said the property market is mindful that the SARB faced a difficult decision.

“The Eskom energy crisis, weak business confidence, deterioration of the CPI inflation to 7% in February (from 6.9% in January), and pressure on the currency left little room to manoeuvre,” he said.

However, he added that the 50bps hike is a bit steep, and the higher interest rate will affect buyers and homeowners. It will result in higher repayments of home loans and other credit and put further pressure on the cost of living and disposable income.

Nonetheless, the hike was largely expected and already factored in by the market.

“While not ideal, the rate is still below the historical average of the last 20-30 years, and we are still seeing a strong, stable property market,” said Seeff.

“The impact of the higher interest rate is somewhat mitigated by the continued favourable bank lending climate, which is still the best in over a decade. The increased transfer duty exemption threshold to R1.1 million is also a positive for buyers,” he added.

Seeff expects business as usual for now, noting that the monthly transfers are still slightly ahead of the pre-pandemic levels.

According to Herschel Jawitz, CEO Jawitz Properties, the rate hike will undoubtedly put pressure on homeowners, but he said the risks of allowing inflation to persist at high levels is far greater.

“The rationale behind the decision by the Monetary Policy Committee far outweighs the risks posed by sustained high inflation. With inflation at 7%, there are very few sectors of the local residential market that are delivering inflation-beating growth in property prices,” he said.

Jawits noted that, on average, property prices are expected to increase this year by 2.75% to 3.5%, which means that in real terms, after inflation, property prices are declining by a similar amount.

“As long as inflation remains high amid low economic growth, real property price growth will remain marginal,” he said.

The table below shows how much more you pay for your bond repayments from today (30 March) compared to the last hike.

Value of the bond (20 years) January 2023 (10.75%) March 2023 (11.25%) Change
R750 000 R7 614 R7 869 +R255
R800 000 R8 122 R8 394 +R272
R850 000 R8 629 R8 919 +R290
R900 000 R9 137 R9 443 +R306
R950 000 R9 645 R9 968 +R323
R1 000 000 R10 152 R10 493 +R341
R1 500 000 R15 228 R15 739 +R511
R2 000 000 R20 305 R20 985 +R680
R2 500 000 R25 381 R26 231 +R850
R3 000 000 R30 457 R31 478 +R1 021
R3 500 000 R35 533 R36 724 +R1 191
R4 000 000 R40 609 R41 970 +R1 361
R4 500 000 R45 685 R47 217 +R1 532
R5 000 000 R50 761 R52 463 +R1 702

Tips for homebuyers

In light of trying economic times, potential and current homeowners should focus on what they can control, says Antonie Goosen, the principal and founder of Meridian Realty.

Goosen suggested the following six considerations for prospective and current homeowners:

  • Use a bond originator to secure the best rate. Many financial institutions continue to compete and offer relatively favourable terms, some offering 100% bonds.
  • Choose from fixed interest rates vs variable bonds. You can only fix the interest rate on a bond for a maximum of five years, but this might make budgeting in high-interest periods easier, even though your interest might be higher.
  • Consider renting a garden cottage out or running an Airbnb as additional income to put toward rising bond repayments.
  • Pay more than your monthly repayment into your bond.
  • If you have a big property, consider subdividing. This can mean you cut down on maintenance costs and make money on the land that you were not using. Put this money into your bond, if you can, to shorten the payback period and essentially the amount of interest you would be paying on the property.
  • Consider renting rather than buying. When renting a property, you know your rent is fixed for a year with an annual increase usually of 10%.