How to cope with rate hikes and meet your bond repayment

Homeowners all over South Africa are feeling the pinch – with ‘pinch’ being a euphemism for crushing financial pressure.

The South African Reserve Bank’s (Sarb) interest rate hikes are taking their toll and homeowners are finding that they need to cough up thousands of rands more each month to meet their bond repayments.

Sadly, the worst is not over. It’s likely that another two interest rate hikes are on the horizon, with the first anticipated to take effect at the end of May.

For those who earn a fixed income, finding an extra R10 000 or so every month to meet your bond payment is not easy, as our salaries generally don’t increase at the same rate.

Read:
Banks up bad debt provisions as interest rate spike hits homeowners
The long-term effects of the tightening cycle
Bigger rate hike brings more gloom for home and vehicle owners
Sarb hikes repo rate by 50bps

It is important to know that there are options available to you which will help alleviate some of the financial pressure but that firstly, it is important to understand what is causing the current interest spike – which affects everything, including your car, credit card and clothing account repayments.

During the 2020 lockdown, the relationship between supply and demand was significantly disrupted. Demand for certain goods and services dropped during lockdown because people could not purchase them, while many people saw their income take a knock due to having to work reduced hours or being retrenched. As a result, both interest and inflation rates remained low. This meant that for those who were looking to buy a house, they could do so relatively affordably.

However, inflation has since ramped up due to several factors – not least of which is South Africa’s energy crisis – and Sarb has increased the interest rate by 400 basis points in an attempt to curb this.

If you bought a house for R2.5 million in 2020, your bond repayment might have been around R20 000 per month, depending on the repayment period and the rate granted to you by the bank.

Fast forward to 2023, and you would now be paying close to R28 000 each month on that same bond; an additional R8 000 that you would need to find somewhere.

Sarb doesn’t raise interest rates to make life difficult for consumers.

By raising interest rates, it can control demand (people cannot buy as much as they now have less money to spend) and keep inflation in check, which helps to protect the rand and thus the economy.

Listen to Corné Welman speaking on The Property Pod:

You can also listen to this podcast on iono.fm here.

The silver lining is that if you’re considering buying a house and can comfortably afford the repayments, now is actually a great time to do so. The rates will drop soon, leaving you with more disposable income. If you’re really clever, you would keep your bond repayments the same as what you’d pay at the peak of the interest rate cycle, which would allow you to pay off your home a lot quicker.

When buying a house, make sure that there’s enough buffer in your budget to provide for possible interest rate hikes. But for those who have already bought a home and are struggling to make the repayments, there are still several things you can do.

Don’t stick your head in the sand

Don’t let the due date for your monthly payment come and go, or ignore your bank’s calls. Be proactive about the situation and reach out to your bank before missing a payment, while your credit standing is still good. Sometimes banks are open to renegotiating the interest rate they offer you on your mortgage, which might save you a couple of thousand rands each month.

Relook your budget

Interrogate your budget to see what you might be able to trim or cut that would reduce your monthly expenditure and free up funds, which you could channel towards your bond repayment.

Also look at other ways you can supplement your income. I would rather rent out a room in my house on a short-term basis to supplement my income than lose my home.

Change your repayment period

Another option is to extend your bond repayment period, which will bring down your monthly payments, but be warned that this should be a last resort.

I would suggest that you first try to see where you can cut to make the current loan repayments. Extending the mortgage period means that you will be paying for your home for a longer time and paying more in interest.

Don’t lose hope

Finally, you should not lose hope. You have made it this far – don’t give up now. The wheel will turn.

Talk to your financial adviser, who can help you restructure your budget, discuss the options available to you, and help you make those difficult decisions that will allow you to ride out the storm until things get better.

Corné Welman is a franchise principal and certified financial planner at Consult by Momentum.