Why you should buy a house when the interest rates are high

Article summary

• High interest rates lead to lower prices and less competition.
• When interest rates drop, demand increases and you can sell your home at a profit.
• Experts predict that interest rate hikes may soon be coming to an end and may even reverse.

It may seem counter-intuitive, but high interest rates can actually provide an advantage to homebuyers.

At first glance, high interest rates make it harder to buy as they increase the monthly repayments you’ll have to make on your home loan. Higher interest rates also mean the bank will examine your income more thoroughly as they want to ensure you can afford the higher home loan repayments.

However, here we provide some reasons why it’s a good time to apply for a home loan despite the recent interest rate hikes.

1. High interest rates lead to lower house prices

High interest rates make it harder for people to buy homes, which ironically, forces sellers to lower their prices.

This partially explains why South Africa is still a buyer’s market despite the interest rate hikes.

Rode’s State of the Property Market Report for Q1 2023 shows that house prices are deflating as a result of the high interest rates.

2. High interest rates result in less competition

If you’ve got your eye set on a dream home, it’s nice to know you may be the only one bidding on it.

This increases your leverage. You can include more demands in the Offer to Purchase, such as a requirement for a home inspection. When competition is higher, buyers may be pressured into waiving such demands so the seller will be more likely to choose their offer.

3. More choice

With more properties staying on the market for a prolonged period, you have time to carefully consider your options. You can spend more time looking for a house that meets your requirements.

Less demand for houses means the seller knows you can easily find alternative options if they don’t accept your offer.

4. You can sell the property at a profit when interest rates drop

What goes up must come down, and interest rates will eventually drop as the South African Reserve Bank looks to stimulate the economy.

Your emotional investment means you may not be thinking about the long-term when purchasing a home, but it’s nice to know that acquiring it at a lower price presents the option to sell it for a profit when demand increases.

5. You can always refinance your home loan

When interest rates drop, the home value will increase and you’ll have more equity available because of the higher amount you paid during high interest rates. This makes refinancing your home loan a more viable option down the line.

The current state of interest rates

As of November 2024, the prime lending rate is 11.25%, based on a repo rate of 7.75% as determined by the South African Reserve Bank.

The prime lending rate was increased by 0.50 in March 2023, which was the latest in a succession of interest rate hikes that have occurred in the past couple of years as the SARB attempts to combat inflation.

But experts believe the interest rate hikes may be coming to an end. “And next year, the rate could even start coming down, economists and property experts say” writes iol.co.za.

In summation…

High interest rates present long-term benefits to buying a home, and with experts predicting interest rate drops; now may be the best time to take advantage of lower prices, lower competition, and the prospect of the property value increasing.

High interest rates make it harder to afford a home loan, but you can ascertain your chances by getting prequalified. Prequalification calculates what home loan you are likely to qualify for.

You can get prequalified by contacting an expert at ooba Home Loans or by using our free, online prequalification tool, the Bond Indicator.