MyPE

Community Business Directory, Event Listings, News and Views from Gqeberha, Nelson Mandela Bay

Mounting pressure on homeowners as interest rates continue to climb

By

South Africans are facing unprecedented financial pressure with inflation at a 13-year high of 7.8% as of July. Food, fuel and transport have all reached record levels in recent months. Some basic food items have seen increases of more than 100%.

With little control over contributing factors like the ongoing electricity crisis and the war in Ukraine, the South African Reserve Bank has once again turned to the interest rate in an effort to curb runaway inflation.

The 75-basis-point interest rate increase announced today is the sixth in a row. It brings the prime lending rate to 9.75%.

“Realistically, the SARB is caught between a rock and hard place right now,” says Tony Clarke, MD of the Rawson Property Group. “They know full well the financial pressure that consumers are under, and how raising interest rates will affect them in the short term, but they also know how much worse things could get if inflation is left to spiral out of control.”

Clarke says that raising interest rates is a tried and tested method of controlling outsized inflation. However, it often makes life harder before circumstances improve.

“Homeowners will definitely start feeling the pinch as their bond repayments continue to climb, right alongside the rest of their everyday expenses,” says Clarke. “For some, there are going to be very difficult decisions ahead. Most households have very few luxuries left to cut back.”

Despite some relief in the form of September’s petrol price decrease, Clarke says this rapid climb will doubtless push some homeowners past the point of no return if their finances are not in order.

“We do expect to see an increase in distressed sales by homeowners no longer able to service their debt,” he says. “This is always a heart-breaking situation, but it doesn’t have to be a life altering financial loss.”

Clarke says the first step for struggling homeowners is to approach lenders to discuss options for relief. Should these efforts fail, however, he strongly advises selling earlier rather than later.

“You really want to avoid being pushed into a rushed sale or, heaven-forbid, having your property repossessed,” he says. “Making the responsible choice to cut your losses early on enables you to take a little more time and work with an experienced realtor to recoup as much value from your property investment as possible.”

With more properties likely to hit the market, and fewer buyers incentivised to act, Clarke says supply will continue to outpace demand for now. This will keep pressure on house price growth in the short term, offering good value-for-money to those able to buy now, with an inevitable upswing just over the horizon.

“In every crisis, there is opportunity,” he says. “That could mean selling now to reduce your debt and improve your financial liquidity, or buying while prices are low to benefit from future growth. It could even mean choosing to renovate rather than upgrade to a new home. The most important thing is not to make impulsive moves out of panic. Do your research, consult with the property experts in your area, and empower yourself to make informed property decisions.”

The South African Reserve Bank’s Monetary Policy Committee (MPC) has hiked the repurchase rate (repo rate) by 75 basis points.

The increase means that the repo rate will now be 6.25% per year from 23 September 2022, with prime now at 9.75%.

The MPC made the decision during its meeting on Wednesday. This was the fifth consecutive increment following a two 25 basis points hike in November and in January. The repo rate was hiked by 50 basis points at the May meeting. The MPC upped the ante, with a 75 basis point rise at its July meeting.

Addressing media on Thursday, Reserve Bank Governor Lesetja Kganyago said three members of the MPC preferred the announced increase.

“Two member preferred a 100 basis points increase,” he said.

The level of the repurchase rate is now closer to the level prevailing before the start of the COVID-19 pandemic in 2020.

Kganyago said the revised repurchase rate path remains supportive of credit demand in the near term, while raising rates to levels more consistent with the current view of inflation risks.

“The aim of policy is to anchor inflation expectations more firmly around the mid-point of the target band, and to increase confidence of hitting the inflation target in 2024,” he said.

Guiding inflation back towards the mid-point of the target band, said Kganyago, “can reduce the economic costs of high inflation and enable lower interest rates in the future”.

“Achieving a prudent public debt level, increasing the supply of energy, moderating administered price inflation and keeping wage growth in line with productivity gains would enhance the effectiveness of monetary policy and its transmission to the broader economy.”

The Governor said economic and financial conditions are expected to remain more volatile for the foreseeable future.

“In this uncertain environment, monetary policy decisions will continue to be data dependent and sensitive to the balance of risks to the outlook. The MPC will seek to look through temporary price shocks and focus on potential second round effects and the risks of de-anchoring inflation expectations. The Bank will continue to closely monitor funding markets for stress.”

Kganyago said the Bank’s forecast of headline inflation for 2022 was unchanged at 6.5%. For 2023, headline inflation is revised lower to 5.3% (down from 5.7%), as a result of lower food, fuel and core inflation forecasts for next year.

“Our forecast for core inflation is unchanged at 4.3% in 2022, and lower than previously expected at 5.4% (down from 5.6%) in 2023,” he said.

Go On – Share the Gqeberha Love!

Views Since 15 July 2022: 51

Gqeberha’s Latest News and Events can be accessed on MyGqeberha.com.

The following two tabs change content below.
My Twitter profileMy Facebook profileMy Google+ profileMy LinkedIn profileMy Flickr profileMy Pinterest profile

Alan Straton

Chief Cook, Bottle Washer and Broom Mechanic at MyPE
Passionate about Port Elizabeth and definitely NOT packing for Perth. Alan's ethos is epitomised in the words of Nelson Mandela; "I have fought against white domination and I have fought against black domination. I have cherished the idea of a democratic and free society. If need be, it is an ideal for which I am prepared to die." See more articles by Alan.