How the rate hike will affect homeowners

Not long after the South African Reserve Bank’s announcement to hike the repo rate by 25 basis points (0.25%) to 6% per annum, the banks increased their prime lending rates (see below).

The hike has been unwelcome news for homeowners that still have a home loan to repay and commentators believe that it will add a further blow to an already slowing housing market.

Lew Geffen, chairman of Lew Geffen Sotheby’s International Realty said that the latest increase would not be that serious if the government had not recently also raised transfer duties by an average of 5.65%, making the cost of purchasing property that much more expensive for average South Africans – most of whom require financing to buy homes.

“The current slowing of the property market will be exacerbated by this interest rate hike and further hurt the economy, which is already taking massive strain from transport, energy and food price increases, not to mention severe negative business sentiment about the overall economic outlook for the country,” said Geffen.

Adrian Goslett, regional director and CEO of RE/MAX of Southern Africa, said that a hike in the interest rate right now would only serve to place further pressure on consumers who are already feeling the brunt of the increased cost of living.  It will also add to the weakening of the economic growth.
“Economic growth has seen a slow down since 2011, which is turn has resulted in a relatively flat property market,” said Goslett.

Here’s how the banks have adjusted their rates following the SARB’s announcement last week:

Absa

Absa consequently announced that its prime lending and variable mortgage interest rates will rise from 9.25% to 9.5%, effective from 24 July 2015.

The bank said that lending rates have been hiked by a cumulative 100 basis points since the start of 2014.

“The latest interest rate hike came against the background of trends in and expectations regarding domestic inflation and some of its major impacting factors, such as the exchange rate, food inflation, fuel prices, electricity costs, as well as the prospect of rising interest rates in the United States later this year,” said Absa.

First National Bank

First National Bank (FNB) will also be increasing its prime lending rate by 0.25% from 9.25% to 9.5% The new rate is effective on all prime-linked loans from Friday 24 July 2015.
FNB CEO Jacques Celliers said that this rate hike is going to put consumers under added pressure.

“Even with gradual interest rate increases like this, consumers should take a careful look at their budgets to make sure they do not allow costs to exceed income. Savings on small items can have a positive impact without creating hardship at home,” said Celliers.
However, it is not all bad, as customers earning income from deposits, such as pensioners, will see additional income flowing from higher rates, said Celliers. 

Standard Bank

Standard Bank's Prime lending rate will increase from 9.25% to 9.5% effective from Friday 24 July 2015, said the bank.
Standard Bank added that the Home Loan base rate will also increase by 0.25% from 9.25% to 9.5% with effect from Friday 24 July 2015.

“These rate changes are applicable for both new and existing clients. Both Fully Guaranteed Loans and Liberator Accounts will also increase by 0.25% with effect from Friday 24 July 2015 in line with the prime lending rate,” said Standard Bank.

Nedbank

Nedbank announced a 25 basis point increase in their prime overdraft rate, the vehicle and asset finance rate and the mortgage rate applicable to home loans - from 9.25% to 9.5%. 

The interest rate for both new and existing vehicle and asset finance loans as well as new and existing home loans will increase with effect from last week Friday, 24 July 2015.