In June last year the prime overdraft rate in South Africa was 10,5%. It is now 14% - and there is a distinct possibility of a further 0,5% rise before the end of this year or early next year.
These facts are well known to most South Africans paying off mortgage bonds, but, says Sean McCauley, Regional Manager for Rawson Properties in the Northern Region, surprising though it may seem, there are many who have not yet calculated just how much more this is now costing them each month.
'A 3,5% increase in the interest rates sounds fairly innocuous,' said McCauley. 'People often do not appreciate that in fact that equates, on average, to a 25% increase in their monthly bond repayments'
This situation, said McCauley, is worrying because many bondholders will in the next few months begin to realise that they can no longer afford many of the items on which they spend their income - and they could become desperate.
Echoing the advice recently given by Rawson Properties MD, Tony Clarke, McCauley said that for those facing the situation now is the time to take action, always if possible with the aim of holding onto their property. McCauley advised that such people should cut out as much luxury and unnecessary expenditure as possible, including most HP spending and, if necessary, arrange with their bank to extend their loan period, thereby bringing down the monthly payments. Ten year extensions, e.g. from 20 to 30 years, he said, are quite often agreed to. If their situation is really impossible, said McCauley, they should try to arrange with their bank to allow them to pay only interest for a stipulated period.
If then it still becomes necessary to sell the home, said McCauley, the bondholder should do so while he is still in a position to make a profit on it, i.e. he should not be put in a position where he has to sell instantaneously. Then he should, if possible, avoid renting but rather buy a less expensive home. Certain hard pressed bondholders, he added, are now doing just this and, judging by the large number of requests for valuations now being received by Rawson Properties, and the recent rise in Rawsons stocks throughout the Gauteng area, others plan to go the same way.
'The good news,' said McCauley, 'is that by and large South Africans have not over-invested in property and the current hiccups are fairly minor by comparison to what has being experienced recently in the United States and, to a lesser extent, in Britain, where, unlike South Africa, values have recently dropped noticeably'
