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What the prime interest rate hikes mean for homebuyers

The prime interest rate is the minimum rate at which banks will lend. Here is the current prime interest rate and what it means for homebuyers.

Prime Interest Rate

Article summary

  • The prime interest rate, also known as the lending rate, is the minimum rate banks will charge on a loan. It is affected by the repo rate, which is set by the South African Reserve Bank.
  • The prime interest rate was at the lowest point in decades during the pandemic, but since November 2021 there has been a succession of interest rate hikes.
  • More increases in the interest rate are expected as the South African Reserve Bank looks to adjust for inflation.

The interest rate is one of the primary factors you should take into account when purchasing a home. Lower interest rates mean significant cost savings over the long term and should be your goal when applying for a home loan.

There are ways to lower your interest rate, but there are also factors that are out of your control, such as the repo rate, which is set by the South African Reserve Bank,

The repo rate in turn determines the prime interest rate, also known as the prime lending rate.

What is the prime interest rate?

The minimum interest rate at which the bank is willing to lend. This will be the repo rate + what banks charge to make a profit.

If you apply for a home loan, your personal interest rate will be the prime interest rate + what the bank adds on, which in turn will be determined by how much of a risk they consider you to be.

A solid financial situation on your part (reflected in your credit score) will earn you lower interest rates.

The current prime interest rate

As of May 2022, the prime interest rate is 8.25%.

In 2020 the interest rate was at 7%, the lowest in decades. The South African Reserve Bank wanted to keep the economy going during the pandemic period.

But since November 2021, there have been four interest rate hikes, bringing the rate to 8.25%. The SARB is seeking to adjust for inflation. More interest rate increases are expected.

Prime interest rate increases:

7% to 7.25% on 2021/11/18

7.25% to 7.5% on 2022/01/28

7.5% to 7.75% on 2022/03/04

7.75% to 8.25% on 2022/05/19

What does this mean for homebuyers?

It means the window for taking advantage of record-low interest rates has passed.

But it’s still a good time to buy. The property market is competitive and banks are more likely to approve home loans in the current climate.

Buyers have options such as the 100% home loan, which removes the need for a deposit. This means higher monthly repayments and interest rates on the home loans, but you remove the need for a sizeable upfront payment, which is the main barrier to entry for many first-time home buyers.

Lower your interest rates

Ways to achieve this include:

A home loan comparison service, such as ooba Home Loans, submits your home loan application to multiple banks at the same time, so you’ll be able to compare the deals offered by the banks and choose the best one.

Banks compete with each other and some may offer lower interest rates than others, hence the benefit of a home loan comparison service.

We also offer a range of tools that can make the home buying process easier.  Start with our Bond Calculator, then use our Bond Indicator to determine what you can afford. Finally, when you’re ready, you can apply for a home loan.

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Estelle Vorster was really helpful in securing the best deal for my home loan, she not only negotiated a lower interest rate she went as far as securing 50% discount on the transfer costs.

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