South Africa appears to be reaching the end of its current interest rate cycle, but homeowners may need to brace for one more hike this month.
Some experts predict the interest rate will not be increased at the next Monetary Policy Committee (MPC) meeting, while others expect one last rise – and possibly of just 0.25%.
Still, any increase in the prime lending rate can have a significant impact on a home loan, other debts, and also one’s overall financial well-being.
As one never really knows whether the rate will increase – or by how much, until the announcements every second month, property experts advise that you prepare your finances to absorb any hikes.
“By taking steps to prepare for interest rate hikes, you can position yourself to weather the market changes that often come with an interest rate hike,” says Adrian Goslett, regional director and chief executive of RE/MAX of Southern Africa.
He offers the following tips to help you do this:
1. Watch the South African Reserve Bank (SARB) – forewarned is forearmed
The MPC follows a recurring schedule and always makes its announcement at 3pm on roughly the third Thursday of every second month, starting in January.
“Leading up to an announcement, keep an eye on the local news. The press is full of information and predictions about interest rate changes. The experts are often right (or close enough to right) and this can give you time to prepare ahead of an announcement.”
2. Review your budget and your debt
Reviewing your budget is an essential step in preparing for an interest rate hike, Goslett says.
“Look at your income and expenses to determine how much more you can afford to pay towards your home loan each month. Knowing where you can cut back on non-essential expenses will help you cope with those extra charges if they do occur.
“If the news reports are warning about an interest rate hike, avoid taking on any new debts or opening any new accounts. If possible, pay off as many bad debts as possible, as all debt repayments will become more expensive if interest rates climb.”
3. Make extra payments whenever you can
When times are good, it is strongly recommended that you keep paying extra into your home loan. Not only will this build up equity in your loan which you can access later should you need to, but paying more than the minimum amount on your home loan will also help you pay off your loan faster and cut down on interest charges.
“If times do get tight and you have been diligently paying extra into your home loan every month, you could potentially approach your bank and ask to refinance the home loan based on the equity you have built up within the account.”
To buy now, or not to buy?
Understandably, there are some people who are on the fence about buying now while interest rates are climbing. But, as Goslett notes, the decision to buy a house is personal, and interest rates may just be one factor influencing that decision.
“Because it’s hard to predict when interest rates will increase (or drop), it’s sensible to factor the possibility of an interest rate into your calculations whenever you choose to buy. Owning a home is a long-term financial commitment which means that, at some stage during the loan term, a homeowner will eventually have to deal with interest rates changing.”
As long as you have factored this into your calculations, you can enter the property market sooner, he says.
Erwin Rode, managing director and chief executive of Rode & Associates, however, does not believe now is a good time to buy a property, unless you are doing so with your own capital and not relying on a home loan. From a return-on-investment point of view, he says the prospects for significant capital appreciation are “poor” given the outlook for the economy.
Expectations for next week’s announcement
Harcourts South Africa chief executive Richard Gray expects either an increase of 0.25% this month, or no increase at all.
“We believe that the upward interest rate cycle is reaching its end, and that further increases could have a negative impact on our struggling economy.”
Reading from the lower-than-expected repo rate increase in January 2023, Thulani Vilakazi, chief executive of Ithala SOC Limited, believes that the decision will be to keep the repo rate unchanged at 7.5%, which will see the prime lending rate remain at 10.75%.
Leonard Kondowe, national manager for Rawson Property Group Finance, says the SARB will intend to curb inflation against the backdrop of rising fuel costs, current energy crisis, rising unemployment, and poverty rates that are leading to an economic downturn. For this reason, he expects that the interest rate will rise again, either by 0.25% or a maximum of 0.5%.
Echoing this, Carl Coetzee, chief executive of BetterBond, is expecting the SARB to “ease off a little” and possibly only increase the repo rate by 0.25%.
FNB property economist John Loos says the Bank has pencilled in a 0.25% repo rate increase this month, which will take the repo rate to 7.75% and the prime lending rate to 11%.
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