The current economic climate in South Africa has many prospective and current homeowners worried about rising interest rates and the cost of living, and applying for a bond may seem like something only a select few can afford to do.

However, with proper planning and decision-making, it's possible to weather the storm and come out on top. Bond originators can play a crucial role in securing the best rates for home loans, and there are several other steps homeowners can take to mitigate the effects of high interest rates. In this blog, we will explore six considerations for prospective and current homeowners to keep in mind during these trying times.

Current Housing Market in South Africa

The current economic situation is concerning, with reports of rising interest rates and the possibility of a global recession making headlines. Despite these challenges, homeowners should concentrate on what they can control and take steps to prepare.

According to the World Bank's Global Economic Prospects, South Africa's economic growth has declined significantly, reaching an estimated 1.9% in 2022. This decrease, compared to the June projection of 2.1%, reflects the increasing cost of living and a weakening economy. The growth forecast for South Africa is expected to further decrease to 1.4% in 2023 and then recover to 1.8% in 2024.

Stats SA reveals that the average annual inflation in 2022 was 6.9%, a significant increase from the 4.5% recorded in 2021. This marks the highest annual average rate since 2009, which was 7.1%. Bond originators can play an important role in helping homeowners navigate these challenging economic times and find ways to manage their finances.

Is the situation all negative? According to Statistics South Africa, inflation declined to 7.2%, a seven-month low, in December. I am optimistic that we are nearing the peak of the interest rate cycle and anticipate some relief in the near future, possibly by the end of 2023 or early 2024.

The South African Reserve Bank Governor, Lesetja Kganyago, shared his thoughts in a recent interview with CNBC at the World Economic Forum in Davos. He stated that a new generation is facing high inflation for the first time and that people are becoming less tolerant of inflation. Some segments of the population may not be accustomed to high inflation and may not have had home loans during the 1998 period when interest rates reached 25%. However, it's important for potential and current homeowners to find ways to manage their finances effectively in the present.

Value Offered by Bond Originators in South Africa

Phoenix Bonds bond originators offer the following six tips for prospective and current homeowners in South Africa:

1. Utilize the services of a bond originator to secure the most favorable interest rate when applying for a home loan. Several financial institutions are still competing and offering attractive terms, including the option for 100% bonds.
2. Decide between fixed or variable interest rate bonds. While a fixed interest rate can only be guaranteed for a maximum of five years, it can provide peace of mind in high-interest periods, even if the interest rate is higher.
3. To offset rising bond repayments, consider renting out a garden cottage or utilizing your property for short-term rental purposes through platforms like Airbnb. Ensure you use reliable agents and have a secure rental agreement in place.
4. Make extra payments into your bond. Utilize a bond repayment calculator to determine how much you can save by making additional payments into your bond.
5. If you have a large property, consider subdividing. This not only reduces maintenance costs but can also generate additional income that can be applied to your bond, ultimately reducing the payback period and interest owed on the property.
6. As an alternative to buying a property, consider renting. Renting offers the benefit of a fixed rate for a year with an annual increase, usually not exceeding 10%. Keep informed on the rental market to make informed decisions.

Phoenix Bonds – Bond Originators South Africa

High interest rates can be concerning, but it's important to keep in mind that the country has navigated double-digit interest rates in the past and emerged successfully. Sound planning and decision-making, along with seeking advice from financial advisors and real estate agents, can help. Utilize tools like the bond repayment calculator to make informed choices. It's important to remain calm, as we may see relief in interest rates by the end of 2023 or early 2024.

Our expert bond originators in South Africa can assist you throughout the entire bond application process. Contact us to find out more.