Holding on to your home in the face of rising costs may seem difficult, but it is not impossible. Picture: Cindy Tang/Unsplash
South Africans, already battling to keep their heads above water, are likely to be hit again later this month when the MPC meets with all signs pointing to yet another interest rate hike.
Adding to the woes of homeowners - some who bought at the edge of their capabilities when interest rates were at a record 50-year low - is that some experts have predicted a bump of 75 basis points.
This means that depending on the size of your bond you could be adding hundreds or even thousands to your monthly bond repayment.
Added to that, while some estate agencies say they are still seeing first-time home buyers enter the market, the rising interest rates have put a cap on their buying powers.
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And, while the property buying market hasn’t drastically waned yet, a top estate agent boss has warned agents themselves to save for a rainy day, as sales could be contracted in the months to come, and this could put pressure on their earnings.
Latest FNB stats have shown an already significant number of South Africans being forced to sell their homes because of financial pressure.
With this month’s electricity price hike and a food basket costing more and more each month plus fuel set to hit record highs from midnight, South Africans are going to have to think out of the box to hold on to their homes.
One way to to do this, advises, Adrian Goslett, regional director and CEO of Re/Max of Southern Africa, is to prepare yourself ahead of the July meeting to avoid falling behind on debt repayments.
Existing homeowners and buyers alike should check what their repayments will be at various interest rate levels, advises Goslett.
For example, on a R1 million home loan taken over 20 years, the repayments will grow by over R1000 if interest rate were to reach pre-pandemic levels of around 10%.
The amount grows the higher the loan amount is. For example, on a R2 million home loan taken over 20 years, the repayment amount could grow by over R2000.
“Equipped with this knowledge, existing homeowners can work out where to cut back to afford the higher repayments.
“For buyers, preparing a table looking at all the permutations can ensure that they purchase a home that they can truly afford even if interest rates climb further,” says Goslett.
Carl Coetzee, chief executive of BetterBond, also advised that after more than a year of record-low interest rates, “consumers need to look at their monthly expenses and what they can afford as interest rates start to once again increase”.
“Those who have the financial means to do so are advised to pay extra into their bond if they can to reduce the amount of interest payable over the whole loan period,” he adds.
“Also, start building a savings buffer so that you have the financial reserves to manage rising prices – fuel, food, and bond repayments – if necessary. Look at your household budget and cut costs to reduce monthly expenses.”
Landlords who are still paying off a home loan on the rental property, might also decide to increase the rental amount to make up for the higher bond repayments, says Goslett. Tenants should leave room in their budgets for rental escalations over the coming months.
While the real estate market has not yet been affected by the series of interest rate hikes, Goslett advises real estate professionals to set aside some savings in case market activity slows.
“In any commission-based career, it is advisable to have cash reserves to get you through the slower months.
“Regardless of the external circumstances, it is always good to ensure that you carry 6-month cash reserves. If you’re not there yet, then I would strongly recommend that you start building towards it,” he says.
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