Homeowners are starting to feel the interest hike.

With our latest rounds of loadshedding, higher-than-average fuel and food prices, and municipal tariffs, the state of affairs paints a seemingly grim picture for anyone's hope to enter the property market. In a recent announcement by South Africa's Monetary Policy Committee, the interest repo rate is now up by 75bps. This challenges aspirant homeowners looking to acquire credit on mortgage loans. 

While South Africa's Reserve Bank strives to maintain the buoyancy of a weakened Rand and embattled economy, the brighter side of this gloomy image is that the repo rate still remains below pre-covid levels.

Why does household income feel strained?

With our fuel and energy reserves under severe strain, homeowners are starting to feel the crunch as their incomes are strained. This has undoubtedly caused an inflation ripple effect across the economy at large.

Yet, according to the Reserve Bank, the crucial challenges homeowners will face have less to do with interest rates and the costs associated with acquiring mortgages. The core issue is the systematic degradation of our national infrastructure by bottlenecks in our electricity, transport, and education sectors.

The bank's primary objective is to bring the interest rate back to a more neutral setting by encouraging as much economic movement as possible. They hope that the resilience of the property sector will bleed through to other sectors as long as the economy remains stimulated. 

Hike was expected

Despite what may come across as rather alarming news, the interest rate hike alongside extenuating challenges was largely anticipated. The brace before the impact is likely why specific sectors can remain dynamic during an economic slump.

The main objective of the economy is to maintain stability. Inflation may be above the preferred target range, yet the increase has begun to slow and plateau to 7.6% in August, down from the 7.8% in July.

Interest rates are expected to increase again during 2022 and possibly even in 2023, peaking around 6.5% to 7.5% (repo rate). Consumers already facing enormous financial pressure will continue to feel the effects of these increases.

A sticky situation for homeowners 

The fact is that South Africa's Reserve Bank is in a tight situation. They understand that raising interest rates under economic pressure only puts homeowners in a stickier position. However, they are weighing short-term effects against long-term goals.

SARB has little choice but to utilise the tried and true method of pushing the repo rate higher to offset potential collapse to control the beast of inflation from spiralling out of control. Homeowners need to steel themselves for the pinch as bond payments and instalments will continue to rise alongside other expenses.

Advice for homeowners moving forward 

Talk of economic turmoil can be daunting. Yet short-term hikes within the current climate may offer long-term opportunities for growth potential. Rather than over-extending, homeowners are encouraged to undertake a thorough budget analysis before any new acquisitions. For potential homeowners feeling as though they've missed the opportunity in the "buyer's market," the new target should be attaining pre-qualification.

Pre-qualification from financial institutions is a crucial step for buyers first navigating the current property market as it helps ascertain affordability. Take your time when perusing the property; there are still plenty of bargains, significantly if you can offset lending costs with a substantial deposit.

If you need more advice during these uncertain times, then feel free to contact one of our friendly Real Estate Property Practitioners; follow the link: 

https://www.homesofdistinction.co.za/agents/ or pop by our offices for a chat. Our doors are always open.

Homes of Distinction CC holds a Fidelity Fund Certificate issued by the Property Practitioners Regulatory Authority.