Price hike, fuel hike, interest hike may sound very alarming and concerning. Cost of living is on the rise also. They could all mean that our disposable income gets diminished, basically having less in our pockets to spend. The recent continual interest rate hikes have put some strain on home buyers. But how bad is it really and why must the interest rate increase?
The global market remains extremely volatile due to the conflict between Russia and Ukraine as well as the food and oil shortages that follow. South Africa has recorded a 7.4% inflation rate in June, higher than the inflation rate of May, April and March this year. This is the highest increase of inflation rate in the past 2 decades. Reserve bank must therefore impose interest rate to curb further inflation in the country. Prime lending rate is now sitting at 9% comparing to 7% during global pandemic.
Property market is very inflation sensitive as most buyers need a home loan to purchase property. Every 0.5% interest rate increase in instalment of a R1 million home could mean R400 more. However, if we look at the interest rate before Covid, it was sitting on 10%, which is 1% higher than what we have now. And South Africa had seen much higher interest rates decades before. For example, in 1998, interest rate was at 25.5%, buying a house was a mission impossible. In 2009, it was at 15.5%. Then Covid came, interest rate hit its 50-year low of 7%. With the above being said, we are still very lucky to have the interest rate controlled at below 10%.
Words of wisdom
At the moment, it is still pretty much a buyer’s market where there is room for negotiation as we have many options out there. Buyers should not really be intimidated by the current interest rate, although budgeting a bit of extra for home loan always goes a long way. Should you have any property-related questions, please feel free to drop us an email on terry@reeflords.co.za.
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