Understanding the impact of interest rates on homeowners' bond commitments

Consumers generally pay their mortgages on time, according to data submitted by credit providers to the National Credit Regulator (NCR).

On average, about 88% of mortgage accounts were current, meaning consumers are keeping up with the agreed monthly instalments, said Bongani Gwexe, the Supervisor at the Research and Statistics department at NCR.

"Those consumers who are experiencing financial challenges are encouraged to talk to their credit providers or seek the assistance of a registered debt counsellor," Gwexe said in response to a media enquiry of Independent Media Property.

He said that consumers who generally apply for mortgage loans are middle- to higher-income earners, and these types of consumers have proven to pay their mortgage loans on time based on the consumer data that is submitted by credit providers.

"Consumers who do not meet affordability requirements or are negatively listed at the credit bureaus, unfortunately, will not be approved for any type of credit. Consumers are encouraged to talk to their credit providers or seek the assistance of a registered debt counsellor before they are negatively listed at the credit bureau or lose their property."

"It is not so much debt levels but interest rates that really impact potential considerations when you’re buying  or investing in a property, says Benay Sager, the chairperson of the National Debt Counsellors Association(NDCA) recently told this publication.

Sager said the movements are driven mainly by changes in the interest rates, and when looking at interest rates five years ago, they were very low in the midst of the Covid-19 pandemic. He added that this created a bit of an artificial boom, and since then the property sector has really slowed down in terms of new purchases.

The NDCA said similarly, in terms of servicing debt in the property sector, things have become a little bit harder.

"If you look at some of the data from the credit bureaux, it shows that defaults, however small, have increased in property repayments and mortgages. It’s still a very small increase but it has risen compared to a few years ago, driven largely by the pressure that these individuals are under."

The organisation which represents debt counsellors operating in South Africa said interest rates really drive property ownership, and they were already seeing the slowdown here. It said that unless the interest rates drop significantly, which is unlikely to happen, they do not really see the make-up changing much in terms of who is able to buy property and the other big dynamics happening there.

"Some parts of the country are becoming more unaffordable, like Cape Town, which probably means other parts that are more affordable will benefit."

According to Sager, the interest rates have been continuing to increase above inflation over the last several years. He said that perhaps that should be curbed, as they were seeing a significant portion of consumers’ expenses going towards paying rates and electricity and other regulated factors.

If these increases can be curbed, and the entities that provide these services can become more efficient, it will definitely benefit consumers, he said.

Last week's repo rate drops by 25 bps came following the Bank of England and European Central Banks’ decisions to drop their respective repo rates by 25 bps, said Bradd Bendall, the National Head of Sales at BetterBond.

He added that the recent decision by the South African Reserve Bank's Monetary Policy Committee was not unexpected.

"Inflation has been trending downwards since last year and is well within the Reserve Bank’s target range. The drop in the prime lending rate to 10.5% provides welcome relief to homeowners, and sends a strong signal to investors that South Africa is intent on stimulating economic growth.

"We have already seen signs of recovery in home loan activity, with a 2.2% year-on-year increase in applications after a period of stagnation. Today’s rate cut will provide further impetus. However, homeowners are reminded to continue budgeting wisely as international tariff disruptions create global economic uncertainty," Bendall said.