Tough times for new homebuyers

By Staff Writer


From Fin24.co.za
October 12 2007
By Tiisetso Motsoeneng

Johannesburg - South Africa's housing market will be hard hit by Thursday's interest rate hike, which brought the hikes since mid 2006 to 350 basis points, property experts said.

"The trend caused the debt servicing cost of households to increase to about 9.7% of disposable income in the second quarter of 2007, with this ratio expected to increase further on the back of the latest rate hike," said Jacques du Toit, a senior economist at Absa.

The SA Reserve Bank raised interest rates by 50 basis points on Thursday, surprising and disappointing some economists who had expected the central bank to leave them unchanged.

Du Toit said that the latest interest rate hike would further negatively influence the affordability of housing, and with debt servicing costs set to rise to higher levels, consumers' already stretched financial position would come under even more pressure during the next few quarters.

The 350 basis point rise in rates since mid-2006 has caused the average monthly repayment on a mortgage loan to increase by 24.6%.

John Loos, a property strategist at FNB, echoed du Toit views, saying that impact of latest interest rate hike on the residential property market "is quite significant".

"For residential property, I believe that this interest rate hike will keep the market on its broad deteriorating trend for the time being," said Loos.

Thursday's interest rate hike adds another R36 per month per R100 000 of mortgage debt, implying that for a R500 000 loan at prime rate a household will have to pay an additional R181 per month.

Additional amount payable following 350 basis points worth of interest rates hikes on a R100 000 loan is R245 and R1 226 on a R500 000 loan.

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