House prices to fall as interest rates climb

Xolile Bhengu

Xolile Bhengu

Home loan repayments have gone up 35percent in the past two years, and with the latest interest rate hike there is no easing off for home owners already struggling to hold on to their homes.

Absa Bank says the cumulative 500 basis point increase in interest rates since June 2006 has caused the average monthly repayment on a mortgage loan to rise by more than 35percent.

Using a R500000 mortgage loan example (20-year term, at 10,5percent in June 2006) the bank said monthly repayments had increased from R4992 to R6769 (at the current rate of 15,5percent), which comes to a cumulative increase of R1778 a month.

The latest 50 basis point hike in the mortgage rate added an extra R185 to the monthly repayment.

Gavin Opperman, group executive of secured lending for Absa Retail Banking, said yesterday the latest hike would have a further negative impact on cash strapped consumers, leading to more property being put up for sale.

Prices are actually expected to drop this year, which will be the first time in about nine years that this will occur.

In spite of current trends, buying a home remains a good investment and should be viewed as a medium- to longer-term investment rather than a quick way of making money.