Homeowners and consumers are in for more belt-tightening as the interest rate rises for the sixth successive time, with the Reserve Bank hiking the repo rate by another 75 basis points to 6.25%.
The base home loan rate moves to 9.75%.
This now effectively takes the interest rate back to the pre-pandemic level. Samuel Seeff, chairman of the Seeff Property Group, said that while the hike was largely expected, stability is now vital for the economy and market.
Seeff said that the central bank now needs to signal when the hiking cycle will come to an end.
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Although the oil price is more favourable and positive for the economy, inflation remains above the Reserve Bank’s target range despite slowing slightly to 7.6% in August (from 7.8% in July). It is also understandable that the bank would look to protect the currency in view of the further deterioration against the dollar this week, said Seeff.
Despite the balancing act that the bank needs to do, Seeff said stability must return to the economy and property market. The economy needs a kickstart, and a favourable interest rate is vital for this.
In terms of the impact of the hiking cycle on the property market, Seeff said it is beginning to see a two-paced market emerge. While demand is still high on the one side, buyer hesitancy is increasing, with deals taking much longer on the other side.
Aside from the spiking interest rate, Seeff said the deteriorating conditions in the country are not helpful. The power outages combined, poor economic data and macro events, including the Ukraine crisis, could be compounding buyer hesitancy.
The deteriorating buying conditions will likely push more people into the rental market. Given that there are stock shortages in certain areas, Seeff said that the country could start seeing rental rates rise, which will be good for the rental market.
“Realistically, the SARB is caught between a rock and hard place right now,” said Tony Clarke, MD of the Rawson Property Group. “They know full well the financial pressure that consumers are under and how raising interest rates will affect them in the short term, but they also know how much worse things could get if inflation is left to spiral out of control.”
Clarke said that raising interest rates is a tried and tested method of controlling outsized inflation. However, it often makes life harder before circumstances improve.
“Homeowners will definitely start feeling the pinch as their bond repayments continue to climb, right alongside the rest of their everyday expenses,” said Clarke. “For some, there are going to be very difficult decisions ahead. Most households have very few luxuries left to cut back.”
Despite some relief in the form of September’s petrol price decrease, Clarke said this rapid climb will doubtless push some homeowners past the point of no return if their finances are not in order.
“We do expect to see an increase in distressed sales by homeowners no longer able to service their debt,” he said. “This is always a heartbreaking situation, but it doesn’t have to be a life-altering financial loss.”
As a result of the interest rate hike, a home loan over twenty years at the prime/base rate will now cost an extra:
|Value of the bond (20 years)||Old monthly cost (9%)||New monthly cost (9.75%)||Change|
|R750 000||R6 748||R7 114
|R800 000||R7 198||R7 588
|R850 000||R7 648||R8 062
|R900 000||R8 098||R8 537
|R950 000||R8 547||R9 011
|R1 000 000||R8 997|| R9 485
|R1 500 000||R13 496|| R14 228
|R2 000 000||R17 995||R18 970
|R2 500 000||R22 493|| R23 713
|R3 000 000||R26 992||R28 456||+R1 464|
|R3 500 000||R31 490||R33 198
|R4 000 000||R35 989||R37 941
|R4 500 000||R40 488||R42 683
|R5 000 000||R44 986||R47 426
Read: Reserve Bank hikes rates by another 75 basis points