The South African Reserve Bank (SARB) has announced a 50 basis point hike to interest rates, taking the current prime lending rate from 11.25% to 11.75%.
This recent hike marks the tenth rate hike since the current hike cycle started in November 2021, totalling 475 basis points over the period.
Rates remain at their highest point in 13 years when the fallout from the global financial crisis weighed on the local currency.
The rate hike aligned with market expectations, with most economists and analysts pricing in the 50bp hike.
According to Reserve Bank governor Lesetja Kganyago, the move to hike rates comes amid persistently high consumer price inflation and a sluggish economy – exacerbated by severe load shedding.
“At the current repurchase rate level, the policy is now restrictive, consistent with elevated inflation and risks,” he said, adding that the situation will remain as such until it changes and inflation returns to the mid-point of the target range.
Chairman of Seeff Property Group, Samuel Seeff, said there was good reason for the bank to take a more dovish stance given the current economic climate. Still, it has been described as “a massive killjoy” for the struggling economy, especially because of the fallout from the Eskom energy crisis, and the market needs positive news.
“Another 50bps is a huge burden for consumers and homebuyers, and the direct effect on homeowners and buyers is that the cost of borrowing has risen drastically over the last two years,” said Seeff.
Seeff added that the rapidly rising borrowing cost had dampened the market. First-time homebuyers, many from the emerging middle class, face affordability challenges, and overall sales volumes have declined.
However, the CEO of BetterBond, Carl Coetzee, noted that there is a silver lining for homebuyers.
“If you purchase at current rates, and you can afford it, you will have more disposable income when interest rates drop – and while the rate hike will impact bond repayments, the good news is that this is likely to be the last increase for a while,” he said.
“Property is a long game, and if you budget for interest rate hikes, and you hang in there when interest rates rise, you will be at an advantage when rates start to drop, as they invariably do,” he added.
For sellers, Seeff said house price growth has stalled, given the rate hikes, which means they must ensure they price correctly if they want to sell right now.
The table below shows how much more you pay for your bond repayments from today (30 March) compared to the last hike.
|Value of the bond (20 years)||March 2023 (11.25%)||May 2023 (11.75%)||Change|
|R750 000||R7 869||R8 128||+R259|
|R800 000||R8 394||R8 670||+R276|
|R850 000||R8 919||R9 212||+R293|
|R900 000||R9 443||R9 753||+R310|
|R950 000||R9 968||R10 295||+R327|
|R1 000 000||R10 493||R10 837||+R344|
|R1 500 000||R15 739||R16 256||+R517|
|R2 000 000||R20 985||R21 674||+R689|
|R2 500 000||R26 231||R27 093||+R862|
|R3 000 000||R31 478||R32 511||+R1 033|
|R3 500 000||R36 724||R37 930||+R1 206|
|R4 000 000||R41 970||R43 348||+R1 378|
|R4 500 000||R47 217||R48 767||+R1 550|
|R5 000 000||R52 463||R54 185||+R1 722|
FNB CEO Jacques Celliers said that the convergence of global and domestic shocks has created a complex web of inflationary pressures in South Africa, resulting in a longer-than-anticipated rate-hiking cycle.
“Therefore, the central bank is obligated to implement appropriate policy interventions and act decisively when necessary,” he said.
“Moreover, the regular and extended hours of load shedding pose an enormous risk to South Africa’s outlook, despite the fact that many households and businesses continue to make commendable efforts to diversify their energy sources.
“At this time, it is crucial for consumers and businesses to continue being proactive in managing their finances to navigate this difficult economic cycle.”
FNB Chief Economist, Mamello Matikinca-Ngwenya, warned that uncertainty lies ahead.
“While the prevailing local supply-side issues around energy and logistics are not considered to be within the ambit of monetary policy, they do adversely impact inflation and demand, by lifting the cost of living and operations.
“Therefore, further intensification of load shedding this winter exacerbates upside risk to inflation, and the upward pressure on interest rates is not fully neutralised. We still believe the MPC has reason to pause, to reflect on the delayed impact of the cumulative rate increase, but also remain cautious about the road ahead.”
Tips for homebuyers
In light of trying economic times, potential and current homeowners should focus on what they can control, says Antonie Goosen, the principal and founder of Meridian Realty.
Goosen suggested the following six considerations for prospective and current homeowners:
- Use a bond originator to secure the best rate. Many financial institutions continue to compete and offer relatively favourable terms, some offering 100% bonds.
- Choose from fixed interest rates vs variable bonds. You can only fix the interest rate on a bond for a maximum of five years, but this might make budgeting in high-interest periods easier, even though your interest might be higher.
- Consider renting a garden cottage out or running an Airbnb as additional income to put toward rising bond repayments.
- Pay more than your monthly repayment into your bond.
- If you have a big property, consider subdividing. This can mean you cut down on maintenance costs and make money on the land that you were not using. Put this money into your bond, if you can, to shorten the payback period and essentially the amount of interest you would be paying on the property.
- Consider renting rather than buying. When renting a property, you know your rent is fixed for a year with an annual increase usually of 10%.