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Homeowners and buyers should prepare for further interest hikes

After almost two years of historically low home loan borrowing costs slashed by 30% in the first half of 2020, we are now back into a hiking cycle. The latest rate adjustment means you are now paying an extra 1.25 percent on your home loan with a further 1 percent in hikes expected this year.

Samuel Seeff, chairman of the Seeff Property Group says despite the rate hikes, it is still a great time to become a homeowner. Even with the expected further 1 percent to come this the year, he expects we will still end at a level below the pre-pandemic rate which is great news for homebuyers.

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 property 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).

So, what could prospective homebuyers do to prepare for the higher interest rate?

Seeff says the expectation of a further 100bps means buyers need to 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 purchase below their budget to create a financial buffer. Instead of buying for R750,000 (with a full bond) at a cost about R6,400/month, you could opt for R690,000 at around R5,900/month, resulting in a saving of about R500/month.

Instead of buying for R1.5 million at a repayment of about R12,800/month, you could opt for R1,35 million at around R11,500/month and create a buffer in your budget of around R1,200 per month.

Investing a deposit is another way to bring down your monthly repayments and create equity and a financial buffer.

What could homeowners do to prepare for the 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 such as a credit card and car loan, you will need to take that into account on top of needing extra budget for the higher food, fuel and other 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 that you need to budget for. Then, start looking at where you can cut and save.

Basic lifestyle and habit changes could save you anything between R500 and R2,000 per month depending on your household. Doing your own cleaning and gardening is not just a great workout, but can save R350 to R3,000 per month for a basic household.

Look for ride and petrol sharing opportunities for your daily work commute. It will not only make the trips more enjoyable, but could save you R500 to R1,000 per 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 amount of cleaning products used.

Help the planet and your budget by using energy-efficient globes and switching off as much as you can. Instal a solar geyser or use a geyser blanket and you could potentially save R500-plus per month.