Guiding consumers since 2009

Potential prime lending rate hike looms

By Danielle van Wyk

All eyes turn to the South Africa Reserve Bank (SARB), as the third Monetary Policy Committee (MPC) meeting is set to take place this month. This will see a decision being taken on the potential prime lending rate hike. The rate which currently stands at 10.5%, will come under pressure given the current economic climate.

“With inflation expected to reach around eight percent towards the end of the year, the Reserve Bank will be hard pressed not to push rates up, even though previous hikes have not done anything to curb inflation,” stated regional director and CEO of RE/MAX of Southern Africa, Adrian Goslett.

This coming at a time where South African pockets are already being stretched as they are having to contend with recent petrol, electricity and food price increases.

The rising cost of living

“With the compounding effect of the ever increasing cost of living, even a marginal increase in rates could be the proverbial ‘straw that broke the camel’s back’ for numerous consumers. Many households are already struggling to make ends meet, so further hikes will be a tough pill to swallow,” said Goslett.

It is due to this situation that many prospective buyers are having to rely on loans to purchase property. An increase to the rates on this front is likely to slow the market even further, noted Goslett.

“Credit will cost consumers more and they will be paying higher repayments on their bonds. Essentially buyers will be paying more and getting the same, or in some cases less. Rate increases will impact affordability levels so potential buyers may be forced to compromise on certain home features. Those who are not prepared to compromise will have to stay within the rental market until they can afford the home they want. Bearing in mind those rentals will also likely increase in order for landlords to meet their growing financial constraints,” he added.

An increase in the interest rate will also have an effect on the bond application process. As financial institutions place a big focus on affordability processes.

This making it “more and more difficult for aspirant homebuyers to show the necessary levels of available finances for bond approval. However, the interest rate is not the only element that will have a bearing on the buyer’s potential to afford a bond. The buyer’s personal finances will play a far greater role in determining how much the buyer will be able to repay on bond instalments,” commented Goslett.

He further advised that prospective buyers and current homeowners make the effort of drawing up a budget to assist them in these trying times. “Consumers will be in for hard times ahead, if they don’t streamline their spending and build up their cash reserves,” Goslett emphasised. 

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