How to survive interest rate hikes
In June last year the prime overdraft rate in South Africa was 10.5 percent. It is now 14 percent, and there is a distinct possibility of a further 0.5 percent 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 there are many who have not yet calculated just how much more this is now costing them each month," says Sean McCauley, Northern Region director for Rawson Properties.

"A 3.5 percent increase in the interest rates sounds fairly innocuous," says McCauley.

"People often do not appreciate that in fact that equates, on average, to a 25 percent increase in their monthly bond repayments!"

Time to cut down expenditure

"This situation 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," notes McCauley.

Echoing the advice recently given by Rawson Properties' MD, Tony Clarke, McCauley says 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 advises that such people should cut out as much luxury and unnecessary expenditure as possible, including most HP spending, and arrange with their bank to extend their loan period, thereby bringing down the monthly payments.

Ten year extensions, for example, from 20 to 30 years, he says, are quite often agreed to.

Avoid selling instantaneously

If their situation is really impossible, 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, the bondholder should do so while he/she is still in a position to make a profit on it, that is, the bondholder should not be put in a position where he has to sell instantaneously.

Then he/she should, if possible, avoid renting but rather buy a less expensive home. Certain hard pressed bondholders 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 Rawson's stocks throughout the Gauteng area, others plan to go the same way.

"The good news 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," he concludes.

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