Despite the high-interest environment facing South African property owners, there is a positive in the market.

In March, the South African Reserve Bank’s (SARB’s) Monetary Policy Committee (MPC) hiked interest rates by a further 50 basis points.

This took the repurchase rate to 7.75% and the prime lending rate to 11.25%.

Rates are now at their highest level since the fallout from the global financial crisis affected the local currency in June 2009.

The rate hike cycle has thus made it more difficult for consumers to finance their debt, putting South Africans under severe finical pressure.

According to ooba Home Loan’s Q1 2023 oobarometer, acquiring a lending rate that is below prime is a crucial cost-saving tool when faced with a high-interest environment.

In positive news for buyers, South Africa’s banks are competing for home loan market share and are offering competitive pricing. 

Ooba said that it achieved an average interest rate of prime less 0.45% for its customers in Q1 2023 – an improvement from the average rate of prime less 0.23% seen in Q1 2022.

It added that the approval rates among banks remained steady and that its customers received an 82.9% approval rate for Q1 2023.

 “This marks a 0.6% increase from Q1 2022 and evidences the continued confidence by home loan lenders in the property market,” Rhys Dyer, CEO of ooba, said.

“Interestingly, 90.4% of our homebuyers who availed themselves of our pre-qualification services were approved in Q1 2023, once again highlighting the importance of being pre-approved prior to shopping around.”

He added that pre-qualified homebuyers tend to have an advantage when it comes to negotiating the terms and cost of a property with sellers.

“While a higher interest rate environment is not without its challenges, the sustained slow growth in property prices coupled with rate discounts on home loans and availability of financing means that there are still plenty of good investment opportunities to be found in South Africa’s residential property market.”

Negative sentiment prevails

Despite Dyer’s positive outlook, other industry players have expressed concerns over the continued interest rate hikes.

Capitec said that the impact of higher interest rates have led to a 20% increase in the value of its average home loans debit orders, stating that the amount of customers with arrears is increasing.

Moreover, since the hike cycle started, homeowners are paying 35% more on their monthly mortgage repayments.

Yael Geffen, CEO of Lew Geffen Sotheby’s International Realty, said that the cause of this issue is due to homeowners not receiving salary increases that align with the hikes in monthly bond repayments – forcing many to sell their homes.

“No salary increases can accommodate the R5,500’s worth of monthly mortgage repayment hikes we’ve experienced in the last 18 months, which is the case for every household in the country currently servicing a R2 million bond,” said Geffen.

“The situation is untenable, and people are going to lose their homes and livelihoods.”

In addition, forward-rate agreements starting in two months – that speculate on borrowing costs –  see traders fully pricing in a 25 basis point increase in their repurchase rate – the MPC may introduce another 50-basis point hike when it gives its next decision on May 25.

This comes after StatsSA data showed that annual inflation grew from 7.0% in February to 7.1% in March.

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