Homeowners need to be prepared for interest rate hikes and other costs

Ryon Phernambucq | 31 March 2023

Ryon Phernambucq is an associate financial planner at Fiscal. He has a BCom in Investment Management and Banking and has completed his Postgraduate Diploma in Financial Planning Law.

The recent unexpected 0.5 basis point increase in interest rates, on top of eight earlier rate hikes, has made it a challenging time for South African homeowners. Servicing a bond is a lot more expensive today than it was a mere 18 months ago.

Every subsequent increase in the interest rate has made it harder for families to keep the roof over their heads.

Homeowners generally do not qualify for a home loan at the prime interest rate, but assuming you do, the table below illustrates just how much more expensive bonds of varying amounts have become since interest rates started increasing:

Bond amount October 2021 monthly repayment at the prime rate of 7%* Current monthly repayment at the prime rate of 11.25%* Increase over 18 months
R700 000 R5 427 R7 344 R1 917
R1 200 000 R9 304 R12 591 R3 287
R2 400 000 R18 607 R25 182 R6 575
R3 500 000 R27 135 R36 723 R9 588
*Calculated on a 20-year bond term


Although homeowners are under pressure now, there is a widely held view among economists and other experts that they have faced the worst of the interest rate hikes.  Read more: Who sets the interest rates and how do they affect me?

Despite this, if you want to make the leap from being a tenant renting a home to a homeowner, it is advisable to always be prepared for a few interest rate increases. Your initial repayments should not be the absolute maximum you can repay.


Never underestimate additional costs

It is also always a good idea to consider the additional costs involved in owning a property. 

  1. Purchasing a property costs money, and expenses include lawyers’ fees for registering your home loan or bond, transfer of ownership costs and deposits required for electricity and municipal accounts.

  2. Maintenance, insurance and other costs like security of the property could average as much as 1.5% of the value of your home per year. Maintenance is an important factor, especially if the property is older than 20 years. The buyer should anticipate that repair work will more than likely have to be undertaken on a regular basis.

  3. Consider monthly municipal rates and taxes to cover the services provided by your local municipality. These include sewerage facilities, road maintenance, street light maintenance and refuse collection, and these amounts vary from municipality to municipality.

  4. If you buy a home in a sectional title ownership scheme, remember that every owner is required to pay a monthly contribution to the body corporate - known as the levy. The levy essentially funds the day-to-day maintenance and management of the sectional title development.

  5. The fun stuff – gardens and a pool. These require ongoing upkeep, and this can be very expensive. It’s important to factor these into your financial planning.

If we factor in the above costs and took, for example, a property with a 2-bedroom house in Sunningdale, Blouberg, Western Cape for sale for R 1 880 000. In this example we used an interest rate of prime plus 2%, as it is typically rare to get an interest rate of prime on a home loan.

The more accurate cost of owning property in this example is:


  Once off Costs Monthly costs Total
Bond amount Bond registration Property transfer cost Monthly instalment Municipal rates and taxes* Levies* Monthly Provision for maintenance and other costs of owning property Total monthly cost
R1 880 000 R41 478 R70 705 R22 361 R650 R350 R2 350 R25 711
*The levies and municipal rates were taken from a property for sale similar to the scenario, sourced from Property 24.

Account for all the costs

Additional costs of owning a property and repaying a bond are important factors that should be considered before making a large purchase such as purchasing a property. Most importantly, you should consider whether, if or when interest rates increase, the property will still be affordable. Read more: How can I make good plans to buy my first home?