Last week, the South African Reserve Bank hiked the repo rate by another 50 basis points.
This means that the repo rate climbed to 8.25% and the prime interest rate to 11.75%.
This is the highest level since April 2009.
To cut a very long, depressing story short; this means that everything is going to become even more expensive – from debt repayments to everyday necessities.
It’s not only rising interest rates which we have to deal with, there’s also the constant, prolonged hours of load shedding that are increasing the running costs of businesses that have to fork out more money for diesel for generators, and all this is filtering down to us, the poor consumers.
The simplest example of how the cost of living has increased is to look at a R2 million home loan.
Since November 2021, there have been 10 interest rate hike increases, and the instalment on a R2m home loan has gone up by over R6 000 per month.
This is the bond repayment only.
It excludes the increase in vehicle loan repayments, credit cards, personal loans and other unsecured debt repayments, as well as an increase in food prices and electricity tariffs.
The cost of living is rising way above what – if any – incomes are increasing by, and this latest interest rate hike could well be the straw that breaks the camel’s back, especially for homeowners.
Yael Geffen, chief executive of Lew Geffen Sotheby’s International Realty, says: “We’re getting deeper and deeper in the weeds while the government’s idea of problem-solving is finger-pointing at everyone else. The private sector is doing its best, but we can’t do it without a functional national administration.”
David Jacobs, regional sales manager for the Rawson Property Group, agrees, adding: “South Africans are battling rising costs on every front, from food to fuel to home finance.
“After the last rate hike, we were optimistic that we’d finally seen the peak of the current interest rate cycle.
“This, however, was not to be, and now some homeowners may see their monthly bond repayments tip over the edge of affordability.
“Established homeowners who are a fair way into their loan term will hopefully have a little more financial wiggle room, with several years of income growth behind them.
“More recent buyers, on the other hand, particularly those who purchased at the peak of their affordability during Covid’s record-low interest rates, have not had the benefit of time to grow into their bond repayments,” Jacobs explains.
Interest rate hikes were therefore hitting these new homeowners the hardest, forcing some to reconsider the viability of their investments. And although selling their homes is not the only option, Jacobs says the reality was that distressed sales were increasing.
Here are some things that you can do to help cope with rising bond repayments and hold onto your home.
1. Get out of denial and acknowledge that there is a problem
Do not just skip payments without any communication with your bank, and don’t ignore the bank’s attempts to make contact with you.
Andrea Tucker, director of MortgageMe, says it is best to confront the realities and speak to your bank as early as possible about your concerns around rising bond repayments.
“Banks don’t want to repossess properties; this is really their last resort, which can be avoided by homeowners communicating with their bondholder prior to them missing one or multiple monthly instalments,” she says.
“Rather meet and discuss options such as a short-term payment holiday, the repayment of interest only for a period, or a renegotiation or restructuring of the terms of your home loan.
“Banks will notice if you miss payments so rather be proactive about a difficult repayment situation before you find yourself in the middle of it.”
2. Review your budget
Go through your budget with a fine-tooth comb and see what you can do without. Take that money that is then freed up, and put it into your home loan.
“Review all your debit orders and cancel any services that you rarely use or no longer need or could do without for a period of time,” advises Tucker.
“These might include subscriptions to multiple entertainment streaming platforms, the gym or other membership fees, or cellphone contracts.
“Consider cancelling any high-interest incurring store cards or credit cards, if possible. You will be surprised how much you can shave off your outgoings in this way.”
3. Get serious about your side hustle and extra income
Now is probably the best time to figure out how to financially get more out of something you have been doing on the side. Every little bit of extra income helps and can go towards covering a gap somewhere.
You should (taking correct safety measures into account) perhaps even look at hiring out a room in your home. It’s not the best-case scenario – but it is better than losing your home.
4. Negotiate your repayment terms
You can speak to your bank about extending your repayment period. This means you will be paying your bond for more years, but doing this could mean the difference between being able to afford your instalment or not.
5. Pay more if you can
You should try and put any extra cash into your home loan repayments. Just a little bit extra (whether each month, or when you can afford it) can have a real impact on your home loan term and monthly instalments.
6. Consider going under debt review
The process of debt review isn’t the solution for everyone, but it has helped many consumers struggling to pay their home loans and other debt, by lowering monthly instalments. When engaging with a debt counsellor, make sure they are registered with the NCR, and don’t sign anything you don’t fully understand.
dailyvoice@inl.co.za