Repo Rate Increase Coming
Economists are warning those with debt to prepare for yet another big Repo Rate increase in November 2022.
The Repo Rate has been going up and up over the last while.
The Repo Rate is set by the SA Reserve Bank and all local banks use this to work out what interest rates they can charge their clients. If the Repo Rate goes up then so too does the rate that the banks charge consumers who are using credit.
Economists say it could be about to go up by 100 basis points during November.
If we take a look at the last 12 months alone you can see how it has shot up putting pressure on those who have committed to long term debt.
Increases Over The Last 12 Months
November 2021: 25 basis point increase
January 2022: 25 basis point increase
March 2022: 25 basis point increase
May 2022: 50 basis point increase
July 2022: 75 basis point increase
September 2022: 75 basis point increase
November 2022: ?
As you can see there has been a consistent upward trend in line with efforts to curbe inflation and react to the global economic financial crisis and energy & sanctions war in Europe
Home Owners Beware
Many people would like to own their own homes and commit to debts over 30 years.
This, of course, carries risks as the bank is able to repossess (and sell) a home if a single payment is missed during the three decades it takes to repay the loan.
Normally, the bank will wait for at least more than one missed payment but the risk is real and consumers do well to consider insurance options to protect their investment (including taking advantage of any retrenchment cover that may be included in insurance for their massive loan).
Increases in the Repo Rate mean that home owners have to pay more and they should prioritse making these increased payments of could face losing their asset.
First Time Home Buyers
First time buyers make up the largest group of people asking for bonds at present (72%).
On average, the stats show they are borrowing just over R1 million to make their purchase.
Due to financial pressures however the banks are asking for bigger and bigger deposits these days and the average deposit (for all home loan applications) is now sitting at 10% of the purchase price.
If you are looking to buy a home or have recently bought a home with a big home loan be sure to adjust you budget to account for the increase in Repo Rate.
It can be good to try get ahead of the required repayment amount and have something of a cushion in case of emergencies.
‘On average, most people will pay the bank 3 times the original bond amount’
Paying a little extra each month can help reduce the interest portion you will pay over time. On average, most people will pay the bank 3 times the original bond amount over the decades. This is mainly due to interest. So, paying extra to beat the interest down will help save a lot over time.
The most important rule is: Never miss a payment!