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When will the interest rate rise? What buyers need to know

A succession of interest rate hikes indicates that the SARB is looking to adjust for inflation. More hikes are predicted for 2022. What does this mean for you?

When Will Interest Rates Rise South Africa

Article summary

  • Interest rates were at their lowest point decades during the pandemic, but a succession of interest rate hikes since November 2021 indicate that the South African Reserve Bank is looking to adjust for inflation.
  • Further interest rate hikes are predicted for 2022, likely to occur in May and July.
  • However, home loan approvals are still on the rise due to competition between banks.

During the pandemic period, interest rates in South Africa were at their lowest in decades, as the South African Reserve Bank looked to stimulate the economy during a difficult period.

But since November 2021, a succession of interest rate cuts have indicated an upward trend, as the SARB looks to adjust for inflation. What does this mean for your home loan application?

More interest rate hikes predicted for 2022

In November 2021 the repo rate was increased from 3.5% to 3.75%. It was raised by a further 0.25% in January 2022, and by another 0.50% in May, resulting in a repo rate of 4.75% and a prime lending rate of 8.75%.

FNB predicts further hikes for 2022, with each hike bringing the repo rate up a further 0.25%.

A representative from BNP Paribas South Africa predicted that an even steeper hikes of 0.50% would occur in May and July.

Economists predict further hikes to follow throughout 2023 and 2024, with the interest rate expected to reach pre-pandemic levels by the end of 2024.

What does this mean for the property market?

Surprisingly the property market remained active during the pandemic period. This has been credited to a demand for larger, more comfortable homes in remote areas as South Africans adapt to the work-from-home lifestyle.

Of course, many have now embraced this lifestyle, so this trend is expected to continue.

FNB expects house prices to average between 3% and 4% in 2022.

Banks are expected to continue approving home loans at a greater rate. Increased competition between banks has led to higher home loan approval, including for 100% home loans.

At ooba Home Loans, 80% of our 100% home loan applications are being approved, with four out of five applicants successfully securing a 100% home loan.

Should I apply for fixed interest rates?

You may be wondering if applying for a fixed interest rate on your home loan is worth a try, so you can continue to benefit from a lower interest rate even as the SARB hikes occur throughout 2023 and 2024.

If you are considering doing this, you should take into account that the premium on a fixed interest rate is usually two percentage points higher than on a variable interest rate.

According to professional services firm PwC, a fixed interest rate arrangement could lift the effective interest rate by two percentage points, whereas under a variable rate, this would happen gradually over the next two years.

Prequalification becomes an even more attractive option

Inflation and the current economic climate makes prequalification all the more useful to prospective home buyers, as it provides you with a solid estimate of what you can afford in the property market. This also makes you more attractive to home sellers, as it proves to them you can afford the home purchase.

You can get prequalified with one of our experts, or by using our free, online prequalification tool, the Bond Indicator.

Lower your interest rates

Whatever happens with the prime lending rate, employing a home loan comparison service such as ooba Home Loans will always improve your chance of getting lower interest rates.

We submit your home loan application to multiple banks, allowing you to compare deals and choose the one with the most favourable rates.

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.

Get prequalified for a home loan today

DIY with our online prequalification tool, or speak to an expert.

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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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