The decision this week by the South African Reserve Bank’s (SARB) Monetary Policy Committee to increase the current repo rate by 25 basis points to 7.25% was anticipated by most economists after the inflation rate in August increased to 4.4% placing significant pressure on the central bank’s target inflation midpoint of 3%.
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Although the SARB kept the repo rate steady at 7% in July, proving South Africa’s already fragile economy with a breather as conflict in the Middle East appeared to have calmed, it was left with no choice but to make adjustments to contain inflation after tensions escalated once again, pushing the oil price to over $100 per barrel by the beginning of September, Neil Abernethy from Tyson Properties conceded.
He said that, despite being resilient, the local property market would inevitably experience some fall out from this rate hike which had pushed the prime rate from 10.5% to 10.75%.
“One has to remember that the spike in the fuel price will have a knock-on effect especially when it comes to the price of transport and of food, two key items when it comes to household disposable incomes. It was low food price inflation that was a deciding factor in the previous decision to keep the interest rate static,” he says.
Stay in the market but to do the maths
Abernethy believes that expected ongoing geopolitical tensions that will manifest as fluctuations in fuel prices and overall inflation make it very difficult to predict whether or not the year will end with either a further interest rate hike or even a decrease.
He advises those wishing to purchase a property – or even considering downsizing from a larger home to contain costs – to stay in the market but to do their maths and work out exactly how much they can afford as a per monthly payment on a home loan. Then, adjust this downwards in order to accommodate potential interest rate hikes upfront.
“You need to build a financial buffer for your household by determining whether or not you can still afford the property if interest rates increase. You also need to factor in if your budget can also absorb other inevitable cost increases in order to fully appreciate the true cost of homeownership which goes beyond your monthly bond repayment. The price of rates, levies, building insurance, maintenance, security and utilities can all shift with the market and must be factored into your calculations,” he continues.
He adds that, with such volatile global and local economic conditions, it is more important than ever to be pre-approved for a home loan.
This, too, comes with a proviso – the most affordable home loan is not necessarily the largest one for which you qualify.
“No-one has a crystal ball and it is never good to overextend. There is always the danger of being home-poor and quickly falling out of love with your dream home. Be realistic when house hunting and settle on one that leaves sufficient room in your household budget for emergencies or future increases in living costs not to mention holidays and other essentials for a good quality of life,” he advises.
He concludes that any drop in interest rates – which some anticipate could be as soon as November 2026 – makes maintaining a higher home loan repayment affordable, paving the way for paying off a property ahead of the expected time. Alternatively, this might give homeowners spare funds to improve on and increase the value of their properties. Both options reflected the need for sensible decision make during uncertain times.
