It’s becoming more difficult for South Africans to keep a roof over their heads. Picture: Devon Janse van Rensburg/UnSplash
A volley of interest rate hikes in the past 18 months have left South African homeowners poorer, and reeling to make ends meet in tough economic conditions.
And while analysts are divided on whether there will be another rate hike announced later this month, one thing is for certain: consumers can’t afford more knocks.
Some experts have in fact predicted that this month’s interest rate to be announcement on July 20 will provide no reprieve for these hard-hit homeowners with some expecting another 25 basis points and, others, in a worst-case scenario, even expecting 75 basis points increase.
The relentless hikes since the Covid lows saw SA Reserve Bank begin to hike interest rates in November 2021 and by March this year interest rates had been hiked by 425 basis points, and another 50 basis points were added in May, says FNB’s John Loos.
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In fact, since November 2021 continual interest rate hikes have seen homeowners with R2 million bonds, for example, pay an extra R6 000 on top of the monthly mortgage repayments they were already making.
Loos says, however, FNB expects this to be the last 25 basis point interest rate hike before rates start to move sideways into 2024.
But, he says, “the end of rate hiking will likely come too late to prevent a significantly slower level of new mortgages in 2023 compared with 2022”.
Meanwhile, Dr Andrew Golding, chief executive of the Pam Golding Property group, believes SARB could go either way next week.
“Analysts are currently fairly evenly split between those forecasting one final 25bps rate hike and those who believe that interest rates have reached a peak in the current cycle.
“It is an unusually close call and it will be best to monitor developments between now and the MPC meeting to see which way the bank is likely to move,” he says.
In the event the Bank does hike rates, this really is likely to be the final hike of the current cycle, he believes.
A 25bps hike on its own does not increase bond repayments significantly: based on R1m bond going from 11.75% to 12% this would be an increase of R173 a month, R347 a month on a R2m bond.
However, Golding points out, “considering the fact that rates have risen from 7% to 11,75% or 12% - the impact is more pronounced”.
Lew Geffen Sotheby’s International Realty ceo Yael Geffen says no matter the amount, yet another predicted higher repo rate this month would mean higher bond repayments and “a crushing debt load on already overburdened South Africans”.
“There is a limit to the amount of belt-tightening society can bear, and I believe we’re close to reaching it.
“Poverty levels are rising and skilled individuals are leaving in droves - a massive economic exodus of people who were heavily invested in the country’s property market. We simply can’t afford to lose any more,” she says.
“For those left behind, the forecast for the next 12 months is grim,” adds Geffen.
Describing a possible interest rate hike as “extremely unfortunate”, Richard Gray, ceo of Harcourts SA agrees the consumer “really can’t handle too many more economic shocks. They are already struggling with high electricity prices, high inflation, large municipal rates increases and already high interest rates”.
“If the rates are hiked again it will impact both homeowners and tenants negatively. Homeowners will struggle to make mortgage payments and we will see a higher number of defaults.
“Landlords will have to increase rental amounts to cover their additional financing costs, which will in turn place pressure on their tenants.
“Interest rate increases also have a negative impact on businesses who have to cope with higher financing costs and rentals and they have no choice but to pass this on to the consumer. And so the cycle goes.
“I believe that the higher than ideal inflation rate is being caused by factors beyond the control of the consumer. Things such as the petrol price, electricity price and the weak exchange rate are causing inflation. Increasing interest rates is simply going to hurt the consumer and the property market,” says Gray.
Adrian Goslett, regional director and ceo of RE/MAX of Southern Africa, agrees that debt holders should brace themselves ahead of the next interest rate announcement.
He says the main priority now should be for homeowners to find ways to stay on top of their debt repayments.
“Until interest rates begin to stabilise and hopefully decrease over time, homeowners will need to work carefully with their budgets to ensure that there are no late or missed payments.
“If the past is anything to go by, we are hopefully nearing a time of stabilisation which should bring some respite to homeowners,” he says.
Goslett says those who simply cannot find the room in their budget for the next possible interest rate hike are advised to seek help from a professional financial advisor before the next interest rate announcement occurs.
“Being prepared will make all the difference when it comes to building greater financial freedom. Never be afraid to speak to the professionals and reach out for help when you need it,” he adds.
So, is there any good news?
Goslett says the main purpose of these interest rate hikes was to bring inflation back within the Reserve Bank’s target range of between 3-5%.
“When you review the interest rate hikes alongside inflation statistics over time, you can see how each increase has had the desired effect of incrementally bringing inflation down,” he says.
Taking a more historical view on the stats, Goslett also points out that as soon as inflation hits the MPC’s target range, interest rates begin to stabilise.
Three different measures of inflation have provided positive news on the inflation front in recent days – the PMI purchasing price index, and producer and consumer inflation, says Golding.
“After surprising on the upside for two consecutive months (February and March), consumer inflation has now surprised with a better-than-expected reading for two consecutive months (April and May) and is currently marginally above the upper limit of the Reserve Bank’s inflation target at 6.3%.
“With global food and energy prices subsiding and the rand having regained some of its earlier losses – allowing for petrol price cuts last month (June) and this month (July) – coupled with a high base last year, the current easing trend in inflation is likely to continue during the remainder of the year.”
Golding says based on these factors alone, the Bank may well be tempted to halt interest rate hikes – which has seen the prime rate rise from 10.25% in late 2019 (before Covid) to a low of 7% for more than a year – at the current level of 11.75%. This at a time of extremely weak economic growth.
However, he added, the Bank will be cautious in the face of a still-hawkish Fed, which has signalled that it is still likely to hike rates later this year.
“The Reserve Bank will also undoubtedly be concerned about future bouts of rand weakness and any increase in the severity of load shedding, which would increase costs for businesses. Finally, it is thought likely that the Bank will look closely at inflation expectations (due this week) to see if the business sector, unions and analysts continue to anticipate higher prices – requiring further rate hikes to dampen price pressures.”