Today’s decision by the Reserve Bank to raise interest rates by 25 percentage points is a timely reminder for prospective homebuyers and property investors to focus on affordability and financial resilience while proceeding with their plans.
So says Berry Everitt, CEO of the Chas Everitt International property group, who says the increase reinforces the need for real estate buyers, and particularly younger first-time purchasers, to buy well within their means and leave sufficient room in their budgets for rising living costs.
“The fact is that they are not only facing slightly higher borrowing costs, but also contending with rising fuel and food prices, the municipal rates and utility tariff increases to be implemented in July and broader inflationary pressures that are affecting almost every other area of household expenditure.
“Against that backdrop, The Reserve Bank had little choice but to increase rates today, and to make it clear that further increases are to be expected until it can bring inflation back in line with its 3% target. And what this means for housing consumers is that they must resist the temptation to borrow at the absolute maximum banks are willing to lend.”
The bank may approve you for a certain amount, he notes, but that doesn’t mean you should spend that whole amount on your property purchase. “The smartest buyers in this market are stress-testing their finances and asking themselves: could we still comfortably afford this home if/ when rates rise again, fuel and food becomes even more expensive and municipal bills increase?”
This advice comes at a time when South African consumers are still under financial strain, despite the interest rate decreases of the past two years. According to the latest PayInc Net Salary Index, the average nominal net salary in SA showed a year-on-year decline of 0,5% in April to R21 228, while inflation-adjusted earnings fell by 2.7% compared to a year ago - to their lowest real level in two years.
“This means that many households are effectively earning less in real terms than they were a year ago, even before taking higher transport and utility costs into account,” says Everitt. “That makes careful budgeting critical now.”
Debt levels are also still placing pressure on affordability. On average, South African households are estimated to spend between 62% and 70% of their monthly take-home pay on debt repayments, while banks typically prefer to see a debt-to-income ratio of below 36% when assessing home loan affordability.
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“These figures show just how stretched many consumers already are, and for first-time buyers especially, this may mean adjusting expectations and considering a smaller property or buying in a more affordable suburb than originally planned.”
However, Everitt cautions against postponing homeownership indefinitely in the hope that interest rates will decline next year. “Many people think they should simply wait for rates to come down before buying, but that could be a costly mistake. We are already seeing stock shortages beginning to emerge in several areas of the market, and that is placing upward pressure on prices.
“This means that by the time interest rates eventually begin easing again – which experts now say will not be until late 2027 at best - prospective buyers could find themselves facing higher property prices that require a larger home loan than they would need today – and having to pay a bigger monthly instalment.
“That is why, is most cases, it makes more sense to buy something affordable now and start building equity in your own property rather than continuing to rent while waiting for ideal conditions.”
He says prospective buyers should focus now on finding a sensible entry point into the market and ensuring that monthly repayments leave enough flexibility to absorb future cost increases.
“Buying your first property has always been about taking the first step, not necessarily buying your forever home immediately. Property ownership is a journey, and building equity over time remains one of the most reliable ways to create long-term wealth.”
What is more, he says, further interest rate increases later this year could unintentionally intensify competition in the affordable and middle market. “If rates rise again as expected, we may well see more owners of larger, more expensive homes deciding to downscale in order to reduce monthly costs. That would further tighten supply in the middle market and could place even more upward pressure on prices in that sector.
“So our overall advice is not to hold back, but to buy smart, buy conservatively and make sure your home still works for your budget even if economic conditions become more difficult over the next 12 months.”
Issued by
Chas Everitt International
For more information
Contact Berry Everitt
On +27 82 441 3601
Or visit www.chaseveritt.co.za
