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Beware, homeowners: the rate jump may be greater than anticipated

picture of a wooden home and key

Economists and real estate specialists estimate a 0.5% interest rate increase this month, but there is a chance it will be 0.75%.

According to Nondumiso Ncapai, managing executive of Absa Home Loans, the interest rate might reach 11% by the end of January, following that month’s boost, IOL reports.

“We expect the South African Reserve Bank (SARB) to raise the repo rate by 75 basis points this month and 50 basis points in January, bringing it to 7.50%.”

Whatever the repo rate is, the banks’ prime lending rate is 3.5% higher.

When asked about the impact on homeowners, Ncapai says, “The average price of a new home is currently around R1.25m, and using this price and loan term of 20 years as a basis, a 0.75% increase in the interest rate will result in an increase of approximately R620 in the required repayment by year-end.”

“Given the ongoing interest rate hikes through the end of January 2023, we believe that customers with the average loan amount may expect a total rise of R1 050 in their payments amount early next year.”

She claims that as interest rates climb, homeowners must account for them in the context of other rising costs of living, such as rising fuel, electricity, and food prices. As a result, homeowners should plan to absorb the cumulative impact of these hikes and consider:

Paying close attention to living expenses and reducing back in areas such as entertainment, clothing, and vacation where possible

Reviewing or developing budgets to track spending and identify savings opportunities.

Having said that, Ncapai predicts Absa will decrease interest rates by 0.75% in the second half of next year when inflation returns to the central bank’s target range.

Carl Coetzee, CEO of BetterBond, agrees, saying the SARB’s timely response to inflation indicates rates might fall again by the end of 2023.

READ MORE: Recording cash transactions over R25k is now a thing of the past for banks

There’s no disputing that South Africans are feeling the pain, and this month’s repo rate hike will be our sixth in a row.

“However, it is worth noting that the Reserve Bank responded rapidly to indicators of growing inflation by progressively raising the repo rate beginning in November 2021.”

This has allowed consumers to plan ahead of time and prepare for the impact on their monthly bond payments.

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