After four, consecutive interest rate increases, there was scant hope that the MPC’s latest announcement would hold good news for homeowners. True to form, the 0.75% increase announced on 21 July will put pressure on households now facing prime of 9%.   Below are some market reactions:

Lew Geffen Sotheby’s International Realty CEO Yael Geffen says a rates hike was expected, but imposing a 75 basis points increase on consumers will be devastating.

“This is the highest single rise in nearly 20 years; putting massive pressure on South Africans who are already dealing with huge increases in the basic cost of living and the previous rates hikes already imposed this year.

“The effect will be even worse for mortgage holders. What this increase means for home buyers in the R2 million range is a monthly repayment hike of nearly R1 000, or some R3 000 since November last year.

“We always advise buyers not to over-extend themselves when they purchase property. It is financially responsible to leave room in the budget for repo rate increases, but increases at this level are untenable for salaried households living on fixed income.”

Geffen says the real estate sector has rebounded spectacularly since 2020, but momentum will slow given that more rates increases are predicted for the remainder of the year.

“The Reserve Bank is responsible for keeping inflationary pressure down and protecting the currency, but at the same time it has a responsibility to ensure economic sectors that contribute so significantly to GDP are protected as well.

“The only good news right now is that house prices are not going to come down, so those who are in the market to buy should get in now. Just ensure that you’re buying with some room to manoeuvre in your budget.”

Tony Clarke, MD of the Rawson Property Group, says “We’ve been expecting a slow and steady increase in interest rates for a while.  Realistically, the lows that we had mid-pandemic were never going to be sustainable in the long term. Unfortunately, factors like international conflict, increasing global economic pressures and our own ongoing energy crisis have forced that slow and steady rise to take a steeper trajectory than we had hoped.”

Despite the sudden increase, Clarke points out that prime remains well below pre-pandemic levels.

“It’s very easy to get caught up in where interest rates are heading and forget to look at where they’ve come from,” he says. “In reality, we spent the full four years preceding the pandemic with prime hovering between 10% and 10.5%. Even if the SARB continues its current rate of hikes, we won’t hit those pre-pandemic levels for many months to come.”

In the meantime, Clarke recommends existing homeowners take a careful look at their budget to reduce the impact of rising interest rates.

For those already scraping the bottom of their financial barrel, however, Clarke says different strategies may be required.

“If you’re concerned about future affordability, the first thing you need to do is talk to your lender,” he says. “Most banks are very open to finding mutually beneficial solutions to assist bondholders over tough times – as long as they’re given fair warning. This is not one of those situations in which it’s better to ask forgiveness than permission. Options tend to shrink dramatically if you’ve already defaulted on your loan.”

High Street Auctions Director Greg Dart says while a repo rate increase was expected, a 75 basis points hike will be a significant blow to South Africans already battling a tsunami of food, transport and utility cost increases.

“The effect of the highest rate hike in nearly two decades is going to have a domino effect on the economy, with inflation putting massive pressure on the private sector as wage expectations rise in line with the cost of living.

“The Reserve Bank’s move to suppress economic demand and protect the currency in the global context is perfectly understandable and reasonable, but at the same time with the basic cost of living rising so fast, business under such pressure and unemployment figures being what they are, there has to be a balance and that should have been a repo rate increase no higher than 50 basis points.”

Dart says the increase is also likely to damper the country’s vibrant property market, which contributes substantially to GDP.

“Suppressing economic demand as a short-term measure is laudable, but because prices that have gone up never again come down, the effect on profitable sectors of the economy such as real estate is longer term; it won’t recover overnight.

“Put simply, you can’t throw out the baby with the bath water. There has to be middle ground, but that’s unlikely for the remainder of the year with more rates hikes forecast and the already devastating impact of Eskom on business activity.”

For more stories like this, Get Estate Life Magazine for free