Bad news for South African homeowners at the start of 2024

 ·26 Jan 2024

The Monetary Policy Committee (MPC) has voted to keep interest rates unchanged – and while it’s a welcomed indication that rates are unlikely to move higher, it still means that indebted South Africans will continue to service their repayments with rates at 14-year highs.

The first interest rate decision for the new year leaves the repo rate at 8.25%, with the prime lending rate at 11.75% – a fourth consecutive hold on rates.

The bank’s decision was unanimous and falls in line with market expectations.

While the SARB has acknowledged the easing inflationary environment, the bank remained hawkish, warning that the risks to the inflation outlook remain on the upside – particularly around food inflation, the power and the logistics and infrastructure crises.

Although property experts noted that a stable rate decision is a good sign, some believe it was a missed opportunity to boost the economy and property market.

Samuel Seeff, chairman of the Seeff Property Group, said there was an opportunity for the bank to consider a 25bps rate cut.

“At the very least, we would like to see the SARB start cutting as soon as the March meeting rather than later in the year,” he said.

Seeff reiterated that the SARB has been too hawkish and that keeping the rate high for so long has hampered the economy and the property market. This has basically resulted in all the positive gains in 2022 evaporating.

Since November 2021, homeowners with fairly modest R2 million bonds have been slammed with increases of more than R6,000 per month.

Rates remain at their highest point in 14 years since the fallout from the global financial crisis weighed on the local currency.

Lew Geffen Sotheby’s International Realty CEO, Yael Geffen, warned in May last year that interest rates at this level were not sustainable, and data from FNB’s latest Property barometer seems to show some evidence of this.

According to FNB statistics, financial pressure accounted for 25% of all residential property sales in Q4 2023, exceeding the historical average of 18% and now the most important reason cited by sellers.

“Consumers need a break. There’s no give in household budgets; the bulk of which is going towards servicing debt,” said Geffen.

“Until the interest rate drops, homeowners only have one choice right now, which is to save where they can and pump any excess cash into servicing the primary debt on their bonds,” she added.

Seeff echoed similar trends, noting that the higher rate has been especially impactful on first-time home buyers and the lower price bands, while an increasing number of homeowners are now looking to sell for financial reasons.

The chief executive of the Pam Golding Property group, Andrew Golding, agreed with this sentiment and noted the current higher debt costs, as a result of the prevailing interest rates, means that consumers – including home buyers and existing mortgage holders – remain under pressure amid a tepid economy, with ongoing load shedding and increased electricity and other municipal tariffs weighing heavily on all sectors.

Despite this pressure, Reserve Bank governor Lesetja Kganyago said the bank is unlikely to adjust its policy rates until the MPC is convinced inflation is under control.

“Disposable income is weak, in real terms – this means adjusted for inflation. So inflation is eating people’s disposable income and restricting their ability to spend. So if people are to have (disposable income) in the future, you’ve got to rein in inflation,” he said.

“Failure to rein in inflation means you are eroding the purchasing power of (households).”

The governor previously noted that interest rates won’t be cut until the inflation rate is sustainably back in the middle of its target range (3% to 6%) – this is not yet apparent, he said, with risks to the inflation outlook still squarely on the upside.

Read: How to downsize in South Africa

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