Economist and property experts had originally predicted the interest rate hike would be 0.5%, but as the time drew nearer for the Monetary Policy Committee’s (MPC) decision, a 0.75% increase seemed more realistic.
And this is what has ultimately happened.
Samuel Seeff, chairman of the Seeff Property Group, says this seventh consecutive hike has now taken the interest rate to 10.5% – higher than it was pre-Covid.
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“While disappointed that the Reserve Bank did not take the opportunity to pause, it is not a surprise and has been largely factored in by the market.
“That said, a pause could have provided a vital reprieve for consumers and homeowners, leaving more disposable money in the economy as we head into the busy festive season for the retail and tourism sectors.”
Due to the interest rate hike, Seeff says home loan repayments over twenty years at the prime/base rate will increase by the following amounts:
- R750 000 bond – extra R374
– Repayment increase from R7 114 to R7 488
- R900 000 bond – extra R448
– Repayment increase from R8 537 to R8 985
- R1m bond – extra R499
– Repayment increase from R9 485 to R9 984
- R1.5m bond – extra R748
– Repayment increase from R14 228 to R14 976
- R2m bond – extra R998
– Repayment increase from R18 970 to R19 968
- R2.5m bond – extra R1 247
– Repayment increase from R23 713 to R24 960
Nonetheless, Seeff says the South African market has remained healthy and generally outperformed world markets over the past few months.
“Despite following world patterns, we have not experienced the dramatic highs and lows and consequent shocks. Our interest rate is still below the 20-year average whereas the US rates have tripled, resulting in drastic hikes in house payments.”
Adrian Goslett, regional director and chief executive of RE/MAX of Southern Africa, agrees that these interest rate hikes are to be expected, especially considering the global trends that are emerging.
“With interest rates and inflation rising across the world, it could be expected that the MPC would increase rates in response to the global uncertainty. This is why we have been encouraging homeowners for a while now to reduce their debt levels, as affordability will become an increasing concern for the homeowner over time.
“The effects of these interest rate hikes only become evident a few months after consumers adjust to paying the higher debt instalments; but, we have already started seeing the signs that property market activity is shifting. Over the last two months, our digital marketing agency has noted a rise in rental related search terms and a decline in buying search terms, which points to a coming shift in the local housing market.”
Goslett also notes that interest rates are roughly back to where they were before Covid, and are therefore not yet at abnormally high levels.
“While interest rates are still manageable at this point in time, I recommend that all homeowners make sure to put themselves in a position to be able to afford the higher repayments on the home loan as well as other debts they might hold. Many economists predict that our GDP is likely to shrink in 2023, which could put further pressure on individuals. Reducing debt now will make any future interest rate hikes more bearable.”
Today’s announcement, says Andrew Golding, chief executive of the Pam Golding Property Group, will certainly be met with some dismay by consumers who are already having to contend with the rising cost of living coupled with the dampening effect of ongoing load shedding.
While there is general consensus that the local interest rate cycle is close to peaking, a recent survey of market analysts revealed that there is little agreement as to the exact timing of the final rate hike – although the most popular view is January 2023.
“There is, however, slightly more agreement as to the level at which interest rates are likely to peak – with most analysts forecasting a peak repo rate of between 7% and 7.5%.”
This will pin the prime lending rate of 10.5% and 11% respectively.
Carl Coetzee, chief executive of BetterBond, says that while the decision to increase the repo rate shortly before the festive season is not what consumers wanted to hear, “we must acknowledge that the Reserve Bank is doing what it can to control inflation, so that we can look forward to lower interest rates again towards the end of next year”.
“This increase, while an uncomfortable one, should help to bring inflation closer to the midline target and once inflation starts dropping, so too will the interest rate.”
While this interest rate hike will have a dampening effect on the residential property market and places further strain on consumers, Rhys Dyer, chief executive of ooba Group, says the silver lining is that it appears that progress is being made in containing inflation both locally and globally,”
“It also narrows the chances of significant rate increases taking place in 2023.
“Important to remember is that 2020 and 2021 saw some of the lowest interest rates recorded in decades. The long-term historical interest rate in South Africa averaged 11.98% over the past 25 years and we are still well below this.”
However, Dyer cautions South Africans to cut back on all non-essential expenditure and to adjust their budgets accordingly.
“The interest rate cycle will always be one that is out of our control and fluctuations are to be expected. The best advice that I can give is to take charge of your financial wellness over this period. Remember, overspending and stretching yourself beyond what is financially viable will impact your credit score and general affordability.”
Seeff says the biggest impact of the hikes has been on the first-time buyers and those purchase property in the lower price bands. The upper price bands are generally less sensitive to rate hikes and more to the general economic conditions.
“The outlook for 2023 looks stable with the Western Cape likely to be the top performer, boosted by semigration and the return of international buyers. Inland areas may see more pressure on sales volumes and prices.”
Echoing this, Golding says that, encouragingly, as the year end approaches – a time which often heralds buying and selling decisions around lifestyle, finances, career opportunities, schooling/education and retirement, among others – indicators are that South Africa’s residential property market will continue to weather the current challenging economic trading conditions.
However, Coetzee encourages aspirant home buyers to factor rates increases into their calculations when applying for a bond.
“Affordability is always important when buying a home, irrespective of whether rates are going up or not. Although we expect house prices to soften over the next months as the interest rate stabilises, property remains a sound investment option, especially during these challenging economic times.”
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