AnalysisResidential News

Interest rates may change but affordability is always important when buying a home

Interest rates may fluctuate but the one constant when buying a home is affordability. “Buying a home is a long-term investment, so one always needs to plan ahead for the future. This means calculating the impact of possible interest rate hikes on your monthly bond repayments so that you start your property journey knowing what you can afford over time,” says Carl Coetzee, CEO of BetterBond, as the Monetary Policy Committee today announced that the repo will increase to 4.25%.

“Inflationary pressures and the global geopolitical impact of the Russia-Ukraine conflict are likely to result in steeper interest rate increases this year than was initially forecast,” says Coetzee. One way of planning ahead is by using BetterBond’s online affordability and repayment calculators to work out what your monthly bond repayments will be when the interest rate is at 10% or more, even though the current prime lending rate is now 7.75%

“Recent changes in the interest rate have not dampened buyer activity, especially at the mid to upper end of the market where buyers are more resilient to these shifts,” says Coetzee. The latest FNB Property Barometer (March 2022) notes that emigration sales have slowed since their peak in 2019, and many buyers are instead semigrating to coastal or inland towns where they can work remotely and enjoy quality of life. The Garden Route and Ekurhuleni were identified by FNB as the top performing districts in the last quarter of 2021, based on house price growth, because of semigration trends. Coetzee adds that BetterBond’s data also points to the positive impact of semigration. “BetterBond’s bond approvals have increased by 10% year-on-year.”

Although first-time buyer activity has stabilised following the sharp uptick in 2020 when interest rates dropped to their lowest levels in more than 50 years, there are still areas reporting  strong activity in this segment, says Coetzee. Lightstone has identified the West Coast near Cape Town as a hotspot for buyers of homes between R250 000 and R1 million, which would appeal to first-time buyers, as well as upwards to R3 million. St Helena Bay and Langebaan recorded the most sales in the past year, with first-time buyers accounting for almost a third of all transactions during that period. “Similarly, our data reveals that first-time buyers can spend less than R1 million on a home in parts of the Eastern Cape, Free State and Johannesburg South East, which includes Soweto. These buyers are spending on average between R1 million and R1.4 million in other provinces.”

Working with a bond originator is one way of softening the blow of future interest rate hikes, says Coetzee. “BetterBond applies to multiple banks on your behalf to secure a more competitive interest rate. This lower interest rate, called a rate concession, will have a noticeable impact on your monthly bond repayments.” Currently BetterBond’s average interest rate concession when applying to four banks is 0.61%, says Coetzee. This means that the interest payable on your bond could be 0.61% below what the banks would have offered if you applied to one bank only. “For example, on a R2 million bond payable over 20 years at prime, an interest rate concession of 0.61% means a monthly saving of R745. So instead of paying R16 419 each month, you would pay R15 674,” says Coetzee.