More pain for homeowners as interest rate hike on the cards

By Yogashen Pillay

As a result of interest rate hikes over the course of this year, homeowners have seen the prime lending rate rise from 7.5% in January to its current 9.75%.

HOMEOWNERS may soon have to fork out even more on their bond repayments as economists forecast yet another interest rate increase later this month.

The next meeting of the SA Reserve Bank’s Monetary Policy Committee is set for November 24.

As a result of interest rate hikes over the course of this year, homeowners have seen the prime lending rate rise from 7.5% in January to its current 9.75%.

Experts have not agreed on the actual percentage increase, but almost all agree the signs point to another interest rate hike.

Dr Sanele Gumede, an economics lecturer at the University of KwaZulu-Natal, said an interest rate hike was very likely.

“Unfortunately, the SA Reserve Bank has to maintain inflation within a targeted 3 to 6% (band), and at the moment the inflation rate is 7.5%. We must admit it has improved slightly from when it was at 7.8%, but it is still way above target. This means an interest rate hike is most likely on the cards later this month.”

Gumede added that this would be bad news for cash-strapped consumers.

“Even if the interest rate went up by 25 basis points, it will have a major impact on debt for the consumer. If we look at an average consumer paying for a home loan and car finance combined with just basic accounts, they would be paying at least R8,000 to R10,000 more than they did back in January.

“There is also the concern that new home buyers are going to be discouraged from buying homes, given the prime lending rate being at 9.75%. With the latest expected interest rate hike we can expect prime lending to be at 10%.”

Professor Bonke Dumisa, an independent economic analyst, said it was a foregone conclusion that the interest rate would increase later this month by at least 75 basis points.

“The SA Reserve Bank has to protect the South African rand and ensure that inflation doesn’t get out of control, so unfortunately the only tool that the SA Reserve Bank has to curb inflation is an interest rate hike. The world’s leading economies, such as the United States … and the United Kingdom, have already increased interest rates and we can expect South Africa to follow suit.”

However, Dumisa added that on a positive note he did feel there was progress in curbing inflation.

“The SA Reserve Bank has been saying that it has been winning the fight to curb inflation. While inflation is still above the desired target range, there is potential that we will turn the corner on inflation and see the interest rate remain stable or decrease next year.

“However, the issue we are facing is that things are being complicated by the fuel price, where we saw an increase in diesel and petrol earlier this month; this could complicate things and affect the inflation rate.

“The other bad news is Brent crude oil is at $98 a barrel, which could indicate another fuel increase for consumers for December.”

Adrian Goslett, chief executive of RE/MAX Southern Africa, said his prediction was that there will be another interest rate hike, probably between 25 and 50 basis points, as the Reserve Bank tried to curb rising inflation.

“It will become more difficult to service loans as interest rates climb, which is why we’ve been encouraging homeowners for a while now to reduce their debt levels to be able to accommodate for this.”

Goslett added that a bigger concern was the predicted shrinking of South Africa’s economy in 2023.

“South Africa’s GDP is probably going to shrink slightly in 2023, and if that happens, this will impact unemployment rates and put greater pressure on tax-paying citizens above and beyond the increasing interest rates.

“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. This will ensure that they are in a good position if, as many economists predict, we head into leaner times in the year ahead.”

Neil Roets, chief executive of debt counselling company Debt Rescue, agreed that an interest rate increase was expected.

“The fact is the economy is not looking good, we are having constant load shedding. We have fuel increases and all this affects inflation. Inflation means that there are sustained increases in prices and the only way to bring this down is to have an interest rate hike. It’s not only curbing inflation, but also making our country more conducive for foreign investment.

“This will have a devastating impact … that will push consumers to be more indebted as everything goes up with inflation, but salaries don’t go up at the same rate.”

To read more, click here:

Like Love Haha Wow Sad Angry

Thank you!

We look forward to the opportunity to get you debt-free!

Did you know?

You can start your application process already. Simply download your assessment or fill in our online application and get one step closer to becoming debt-free with Debt Rescue!

Subscribe to Our Weekly Email

By completing this form, you are providing Debt Rescue with the above personal information and acknowledge the terms of Debt Rescue’s Privacy Notice.