Higher bond repayments and rising rates put pressure on property owners

Eight Reserve Bank interest rates hikes since the beginning of last year have caused the prime lending rate to go from 7.50% to its current 11.25% – a growing concern for home bond holders.

Managing director of Local Real Estate, Graham White, said the sluggish economy, Ukraine-Russian war, the weaking rand and effect of inflation have all played a major role in recent increases of the prime lending rate, which significantly impacts people’s disposable income.

The result, he said, meant that property sellers had been hit by a proverbial ‘double whammy’, with buyers becoming more cautious and sellers left stuck with higher bond repayments.

“For existing homeowners it translates to less monthly disposable income, plain and simple. Some might even be forced to look at having to sell if they hadn’t factored in these rises in the period after lockdown.”

Ongoing property rates, fuel, electricity and water increases are causing many property owners to consider selling their homes to downsize. Buyers on the other hand, have to seriously consider the impact of more potential interest rate hikes which could put them under pressure.

White said if interest rates kept on rising, it may result in homeowners turning to renting out additional space or consider home-sharing.

Those who had factored interest hikes, will likely first consider other means of saving on monthly budgets.

Despite this, White said positivity nevertheless remains in the property market with people still seeing the value in buying property as a longer term investment.

This sentiment is driven by the anticipation that the prime lending rate should begin to stabilise – and even drop towards the end of the year. He noted recent figures indicated the property market was still at a healthy high despite activity levels dropping somewhat.

“Buyers are getting more of an appetite to make cheeky offers. Interest rates are only slightly higher than the pre-Covid period.”

Should the prime lending rate reach 13-14% however, then people might have to start making some tough decisions, he warned.

On the lower-end of the buying market, he said people are holding off on signing on the dotted line on properties in the R1.1-R2.2-million range for fear of future increases.

Landlords have been especially hard-hit as they have to keep up with increased monthly bond repayments while rentals remain static.

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