Homeowners set to struggle as high interest rate bites

Owning a home is the ideal dream for many individuals and families. A home gives security, stability and an investment. However, the reality of home ownership is challenging especially when interest rate hikes begin to bite.

According to leading property management company WatchProp's managing director, Craig Coetzee, the rising cost of a bond due to the rapid rate increases over the past year, places significant strain on household and commercial budgets and will place families in a precarious position.

The impact on the market resulting from the Monetary Policy Committee raising the repo rate to 8,25%, up by 50 basis points increasing the prime lending rate to 11,75, the highest since 2009, is vast:

• The escalating financial pressure, not only on home loans, but car financing, credit card debt and the inevitable increase in consumer goods, may lead to further stress and anxiety and reduced quality of life. Increasingly there is less room in households for essential needs like schooling, healthcare or savings. 
• There is less flexibility for homeowners to obtain favourable loans while sellers may find it more difficult to achieve their desired selling prices.
• Tenants will likely be paying more for their rentals as the squeeze impacts landlords.
• The property market will face the brunt of the increased interest rate. As rates increase, buyers tend to take a step back and delay purchasing decisions, opting to wait it out until rates ease, which is unlikely in 2023. 
• Building equity in homes will also be delayed as the increased interest rate will dip into those additional amounts home owners are paying into their bond.
• Importantly, the risk of defaults on bond repayments will increase as homeowners and tenants begin to feel the bite.

Coetzee says that already stretched budgets will now be stretched to near breaking point. Homeowners will now have to sharpen their ever shortening pencils even more and carefully assess income and expenses and may even have to cut all discretionary spending to cater for the demand on home loan payments. 

High interest rates pose significant challenges for consumers as their financial stability is threatened. Homeowners will now have to navigate these challenges carefully to regain control of their finances.

Coetzee recommends that those facing these challenges consult with their landlords, banks and property management companies sooner rather than later to ensure workable solutions are arranged to protect homeowners and landlords.

Contact WatchProp on 021 441 8800 or email info@watchprop.co.za