At the end of March 2023, the South African Reserve Bank announced yet another 50 basis point increase to the interest rate, taking the repo rate to 7.75% and prime lending rate to 11.25%. With this latest rate hike, the monthly bond repayments over a 20 year term have increased by approximately:

R750 000 bond – extra R255 from R7 614 to R7 869
R900 000 bond – extra R306 from R9 137 to R9 443
R1 000 000 bond – extra R341 from R10 152 to R10 493
R1 500 000 bond – extra R511 from R15 228 to R15 739
R2 000 000 bond – extra R339 from R20 305 to R20 985
R2 500 000 bond – extra R424 from R25 381 to R26 231

The SARB faced a difficult decision. The Eskom energy crisis, weak business confidence, deterioration of the CPI inflation to 7% in February (from 6.9% in January) and pressure on the currency left little room to manoeuvre. While not ideal, the rate is still below the historic average of the last 20-30 years. At 11.25%, the interest rate is only slightly above what it was just after the 2008 Global Financial Crisis (GFC). In mid 2008, when the GFC crisis peaked (exacerbated in SA by the introduction of the National Credit Act in 2007 (NCA)), the interest rate spiked to 15.5%.

That said, the current higher interest rate has affected buyers and homeowners. It has resulted in higher repayments of home loans and other credit and it has put further pressure on the cost of living and disposable income. This interest rate hike will undoubtedly be most challenging for those who bought when interest rates were at their lowest.

A positive for the market is that the banks are not reporting any significant spike in financial distress. Competition among the banks means that deposit requirements are generally still below 10% and approval rates at well over 80%. This too is significantly better compared to the post-2009 period. FNB for example recently reported that selling due to semigration for better service delivery and quality of life still seems to outpace financial related selling in the market.

South Africa’s economic woes are weighing heavily on the property market though. People are struggling to make ends meet, let alone save for big investments like property purchases. This, together with the rising costs of property finance, has steadily eroded the pool of qualified buyers, however property remains one of the most predictable safe havens in which to protect and preserve personal wealth. It’s easy to forget that property is a long-term investment journey and all these highs and lows are a natural part of the landscape. The best advice right now is to buckle up, focus on protecting and improving your property’s value, and always consult with a property expert before making any big investment decisions.

With consumers under increasing pressure from the rising cost of living and a series of interest rate hikes since late 2021, it was hoped that the MPC would keep the repo rate stable in order to help support economic activity. A pause in the upward cycle would have allowed some breathing space and stimulated positive market sentiment. A key for the economy in general and the property market in particular is the state of household finances, which are currently under pressure as a result of the recent resurgence in the cost of living and series of hikes which have taken interest rates to above pre-Covid levels.

While higher-than-anticipated inflation (7% Feb 2023) was a contributory factor, this ninth increase of 50bps is a bitter pill for households and businesses. The South African economy is under significant pressure with the power crisis undermining economic activity while simultaneously fuelling inflationary pressures by compelling those who can afford it to invest in back-up power. Not only does this dent household incomes and business revenues, it is also fuelling price pressures in food production and transport, with the food inflation rate reaching a 14-year high in February 2023.

However, there is hope on the horizon by way of opportunities that still exist for current homeowners and aspirant homebuyers. Government has increased the transfer duty threshold to R1.1 million, making it easier for first-time buyers to get a foot on the property ladder. And households are now able to apply for tax breaks that make solar installations more affordable.

The important question is whether or not this latest increase will represent the peak of the current interest rate cycle. Although it is particularly difficult to predict at present, on balance it is hoped that we have reached the peak of the current cycle, with the weakening in the economy likely to limit the Reserve Bank’s appetite for further interest rate hikes, at least for a while. This would then allow the full effects of the interest rate hikes already implemented to take effect.

Thankfully, financial experts remain hopeful that interest rates will now stabilize. Provided there are no more surprises within global markets and our energy crisis does not worsen, it is possible for this to be the last interest rate hike we’ll see for the next while. It all depends on whether the MPC decides that the risks to inflation are under control.

Despite the series of interest rate hikes, the property market continues to be active, although certainly less active than it was during COVID. People have continued to buy, sell, and rent properties despite the higher interest rates. While it will be challenging for some to adjust to the higher repayments, the property market in general will weather this storm; a home priced at fair market value will still sell timeously and at full value if marketed by a reliable professional.