The prevailing interest rate is one of many factors that influence the decisions being made by home buyers and sellers.

With interest rates currently high, prospective buyers and sellers must carefully evaluate the implications of their decisions. Last year was difficult for consumers due to the high cost of living and the increase in interest rates, which had a knock-on effect on the cost of credit.

Toni Anderson, Head of Home Services at Standard Bank, says that in 2023, the bank made a proactive decision to assist some of its homeloan clients in fixing their instalments with an extended term.

“This provided much-needed relief to individuals who were experiencing financial difficulties. However, it is crucial to note that South Africa’s interest rates remain high, and property buyers and sellers must understand what this means for the market,” says Anderson.

Factors for buyers and sellers to consider

In this current high-interest-rate environment, property buyers and sellers must be aware of the following:

Buying power

High interest rates often favour those who are in a better financial position to be able to purchase property, so some consider it a buyer’s market. Sellers, on the other hand, have to be realistic about ensuring that properties are reasonably priced to attract qualifying buyers.

Fixed or flexible interest rates

The conundrum about whether to fix or keep a fluctuating rate is often pronounced during cycles of rising interest rates. This is a likely option for people with good credit profiles, as they’re likely to be offered a lower rate; however, for everyone else, it could mean missing out when interest rates decrease.

Room for negotiation

Sellers facing a market with higher interest rates should be prepared to adjust their price points. This may involve setting realistic asking prices, offering incentives, and ensuring their property is well-presented to stand out in a more competitive market. Understanding the mindset of buyers in a high-interest-rate environment is key to successful negotiations.

Market conditions and home valuations

When interest rates are high, market conditions may influence home valuations. Buyers and sellers should stay informed about local market trends and comparable property values. Being aware of these factors can help set realistic expectations and facilitate informed decision-making.

Evaluating the long-term investment

Homeownership is a long-term investment, and buyers should consider the potential impact of high interest rates on their overall financial goals. While current rates are important, assessing the sustainability of mortgage payments over the life of the loan is crucial. Working with financial advisers can provide valuable insights into the long-term implications of home financing decisions.

Home inspection and appraisal considerations

Buyers should conduct thorough home inspections to identify any potential issues that may require immediate attention or negotiation of the sale price. In a market with higher interest rates, ensuring that the property’s appraisal aligns with the agreed-upon sale price is crucial for securing financing.

Be aware of how interest rates affect the property market

“By staying attuned to the implications of interest rates, households can make informed decisions when buying or selling.

2024 kicked off with the South African Reserve Bank (SARB) keeping interest rates unchanged; however, economic commentators expect interest rates to come down in the medium term, even though the drop is dependent on a range of factors, including the inflation trajectory,” concludes Anderson.

This article first appeared in City Press.