Light at the end of the tunnel / what goes up, must come down

Pertinent to the recent interest rate hike, bringing the prime lending rate to 15.5%, Kevin Lancaster, CEO of Betterbond, sheds some light on the subject of interest rate hikes, assuring that there is a glimmer of hope on the horizon.

Interest rates are cyclical, meaning over each period interest rates will rise; reach a peak and then decline. "What South Africa is experiencing with the rise of home loan interest rates is part of a normal property cycle which can be found anywhere in the world. When comparing the various cycles over the past two decades one will find that the total percentage by which rates have hiked per cycle, has been approximately 6% on average," says Kevin Lancaster, CEO of Betterbond.

When examining home loan interest rate changes over the past 20 years, the following is evident:

In 1988 the prime interest rate stood at 13,5%. This increased to 20% in 1991, indicating an overall increase of 6,5% for that particular period.

In 1998 the interest rate rose from 18% to 24% showing a rise of 6% at the end of that cycle.

From April 2005 to date the interest rate has increased by 5%. "Despite the latest increase, one can still clearly see that we are on par with the total percentage by which rates have hiked over the past 20 years. Inevitably, what goes up must come down and consumers can rest assured that there is 'light at the end of the tunnel'," says Lancaster.

Historically the banks considered equity in terms of lending criteria, and affordability was not taken into consideration. However, over the last two decades affordability, security and integrity have been looked at more vigorously by banks - affordability being the overriding focus.

Due to numerous rate hikes over the past few months, property affordability has become a problem for homeowners and investors. Many homeowners are finding that they are unable to keep up with bond repayments and investors alike are selling off luxury investments so as to improve cash flow.

However, consumers should keep in mind that despite experiencing further interest rate hikes, a decline is expected. Some economists even envisage as much as a 2.0% - 2.5% decline by the middle of 2010.

"We can and should find comfort in the fact that a similar trend has been noted in interest rates cycles over the past years, and with reference to history, we could be near the peak in the current cycle. Homeowners should however, during these tough times, exercise caution and restraint in terms of spending. Make wise financial decisions so as to keep up with home loan repayments," Lancaster concludes.

 DATE OF CHANGE

 HOME LOAN RATE

 

DATE OF CHANGE

 PRIME LENDING
RATE

1 DECEMBER 85

17,75%

 

24 JANUARY 86

15,50%

1 JULY 86

17,00%

 

12 MAY 86

14,50%

1 OCTOBER 86

16,00%

 

25 AUGUST 86

14,00%

1 JANUARY 87

15,00%

 

24 SEPTEMBER 86

15,50%

1 APRIL 87

14,00%

 

30 DECEMBER 86

12,00%

1 MARCH 88

13,50%

 

24 JANUARY 87

12,50%

1 JULY 88

15,00%

 

25 JANUARY 88

13,00%

1 OCTOBER 88

16,00%

 

10 MARCH 88

14,00%

1 DECEMBER 88

17,00%

 

5 MAY 88

15,00%

1 FEBRUARY 89

18,00%

 

29 JULY 88

16,00%

1 MAY 89

18,75%

 

3 NOVEMBER 88

18,00%

1 JULY 89

19,75%

 

28 FEBRUARY 89

19,00%

1 DECEMBER 89

20,75%

 

8 JUNE 89

20,00%

1 APRIL 91

19,75%

 

11 OCTOBER 89

21,00%

1 NOVEMBER 91

20,00%

 

2 APRIL 91

20,00%

1 MARCH 92

19,00%

 

1 OCTOBER 91

20,25%

1 JULY 92

18,00%

 

28 MARCH 92

19,25%

1 SEPTEMBER 92

17,25%

 

25 MAY 92

18,25%

1 DECEMBER 92

16,75%

 

25 NOVEMBER 92

17,25%

22 FEBRUARY 93

16,00%

 

22 FEBRUARY 93

16,25%

15 NOVEMBER 93

15,25%

 

1 NOVEMBER 93

15,25%

28 OCTOBER 94

16,25%

 

26 SEPTEMBER 94

16,25%

23 MARCH 95

17,25%

 

25 FEBRUARY 95

17,50%

3 JULY 95

18,25%

 

3 JULY 95

18,50%

29 APRIL 96

19,25%

 

29 APRIL 96

19,50%

20 MAY 96

20,25%

 

20 MAY 96

20,50%

1 JULY 96

19,25%

 

1 JULY 96

19,50%

1 OCTOBER 96

19,00%

 

1 OCTOBER 96

19,20%

21 NOVEMBER 96

20,00%

 

21 NOVEMBER 96

20,25%

1 NOVEMBER 97

19,00%

 

1 NOVEMBER 97

19,20%

10 MARCH 98

18,00%

 

10 MARCH 98

18,25%

17 JUNE 98

20,00%

 

17 JUNE 98

20,25%

4 JULY 98

22,00%

 

20 JUNE 98

21,25%

 

 

 

25 JUNE 98

20,25%

 

 

 

30 JUNE 98

22,25%

 

 

 

4 JULY 98

23,25%

 

 

 

14 JULY 98

24,00%

29 AUGUST 98

23,50%

 

29 AUGUST 98

25,50%

12 SEPTEMBER 98

24,00%

 

19 OCTOBER 98

24,50%

19 OCTOBER 98

23,00%

 

9 NOVEMBER 98

23,50%

15 DECEMBER 98

22,75%

 

7 DECEMBER 98

23,00%

11 JANUARY 99

22,00%

 

11 JANUARY 99

22,00%

1 MARCH 99

21,00%

 

12 FEBRUARY 99

21,00%

15 MARCH 99

20,00%

 

15 MARCH 99

20,00%

26 APRIL 99

19,00%

 

26 APRIL 99

19,00%

25 JUNE 99

18,00%

 

25 JUNE 99

18,00%

14 JULY 99

17,50%

 

14 JULY 99

17,50%

2 AUGUST 99

16,50%

 

2 AUGUST 99

16,50%

4 OCTOBER 99

15,50%

 

4 OCTOBER 99

15,50%

25 JANUARY 2000

14,50%

 

25 JANUARY 2000

14,50%

18 JUNE 01

13,75%

 

18 JUNE 01

13,75%

1 AUGUST 01

13,50%

 

16 JULY 01

13,50%

1 OCTOBER 01

13,00%

 

25 SEPTEMBER 01

13,00%

28 JANUARY 02

14,00%

 

16 JANUARY 02

14,00%

18 MARCH 02

15,00%

 

18 MARCH 02

15,00%

1 JULY 02

16,00%

 

1 JULY 02

16,00%

14 SEPTEMBER 02

17,00%

 

14 SEPTEMBER 02

17,00%

12 JUNE 03

15,50%

 

12 JUNE 03

15,50%

18 AUGUST 03

14,50%

 

14 AUGUST 03

14,50%

11 SEPTEMBER 03

13,50%

 

11 SEPTEMBER 03

13,50%

20 OCTOBER 2003

12,00%

 

20 OCTOBER 2003

12,00%

15DECEMBER 2003

11,50%

 

15 DECEMBER 2003

11,50%

16 AUGUST 2004

11,00%

 

13 AUGUST 2004

11,00%

15 APRIL 2005

10,50%

 

14 APRIL 2005

10,50%

8 JUNE 2006

11,00%

 

8 JUNE 2006

11,00%

4 AUGUST 2006

11,50%

 

3 AUGUST 2006

11,50%

14 OCTOBER 2006

12,00%

 

14 OCTOBER 2006

12,00%

8 DECEMBER 2006

12,50%

 

8 DECEMBER 2006

12,50%

7 JUNE 2007

13,00%

 

7 JUNE 2007

13,00%

16 AUGUST 2007

13,50%

 

16 AUGUST 2007

13,50%

11 OCTOBER 2007

14,00%

 

11 OCTOBER 2007

14,00%

6 DECEMBER 2007

14,50%

 

6 DECEMBER 2007

14,50%

10 APRIL 2008

15,00%

 

10 APRIL 2008

15,00%

12 JUNE 2008

15,50%

 

12 JUNE 2008

15,50%

Click to enlarge


Article by: David Warneke - www.sapropertyinvestor.co.za