How does the Interest Rate Increase Affect you?

With the Reserve Bank deciding to increase the repo rate to 6%, and the variable interest rate subsequently moving from 9,25% to 9,5%, we thought we should try and put this into numbers in order to try and help our clients better understand their position.

 The Rate Hike can be broken down into simple terms. 

For every R100 000 of a bond that you have (workings at prime), your bond instalment will go up from R916 per month to R932 per month. An increase of R16 per month per R100 000.

 Working that out into other brackets are as follows:

R500 000 was R4580 and is now R4660 (an R80 Difference)

R1 000 000 was R9160 and is now R9320 (a R160 Difference)

This rate hike may not seem hugely significant. But its in the qualifying for a bond where we see the biggest difference.

For example, a potential buyer looking at purchasing a home for R500 000 would before the increase need to earn a house hold income of R15 268 per month. With the new rate, this house hold income needs to be R15 533. The difference of R265 again may not seem substantial, but in an environment where costs are ever increasing and people are servicing more debt, the extra amount does have an impact on potential buyers bond applications. Another way to look at it is a household earning the original R15 268 would have realised a bond of R500 000 at the old prime rate, but at the new rate they now only qualify for R491 000.

Using the above for a client looking at a R1 000 000 bond, the household income previously would have had to be R30 533. Using the new interest rate the household income would now have to be R31 067. 

 These figures all show that the interest rate increase of 0.25%, has not made a significant impact on affordability just yet. The concern however is where are we headed with the interest rate. As said previously, in an environment where costs are increasing substantially for households, where is this going to leave buyers with regards to their ability to purchase a home or investment property???

It is not all doom and gloom however. We in PMB are very fortunate as our property market has shown good signs of improvement in the 2015 year so far. And this has carried on over the last few days since the interest rate increase. We are experiencing a great deal of demand in PMB and there is a serious shortage of quality stock available to potential buyers.

So the question we should all be asking is…. How much is my property worth? And is it a good time for me to sell?? Well, give us a call for a free valuation and discussion!!

***Article written by Paul Campbell

*** Figures all based on Prime Interest Rate