Another interest rate hike looms for South Africans, and first-time homeowners may be under more pressure than others.
The next announcement by the Monetary Policy Committee (MPC) will be on September 22, and rates could increase by as much as 0.5% – maybe even more.
If this is the case, then Adrian Goslett, regional director and chief executive of RE/MAX of Southern Africa says interest rates would resemble the pre-Covid levels of around 10% (prime), and therefore not be new to established homeowners. New owners who purchased properties while the interest rates were low may, however, struggle.
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He states that established homeowners who owned property before 2020 were able to afford the repayments at the higher interest rate and are likely used to the fact that interest rates change over time.
“My concern is around the many first-time home buyers who entered the market when interest rates were at an all-time low and who might be unfamiliar with the fact that interest rates change often over the span of a twenty-year loan term.
“For these kinds of homeowners, I would encourage them to do the necessary repayment calculations ahead of the next MPC meeting to make sure they can afford the higher repayments.”
Goslett adds though, that the pre-pandemic housing market was still performing well even with interest rates being at around 10%, and he therefore remains “optimistic” that the property market will “not be too badly affected by rising interest rates”.
For those who are still hoping to enter the market, he explains that rising interest rates should not deter them.
“A well-thought out real estate purchase is always a sound investment decision and interest rates will eventually stabilise again. The sooner you are able to enter the market, the sooner you will benefit from owning an appreciating asset that can help you generate future wealth.”
The decision to hike the repo rate by 0.75% at the previous meeting, while uncomfortable, will help guide inflation back towards the 3% and 6%, says Carl Coetzee, chief executive of BetterBond. This will allow the country to expect to see lower interest rates in the future.
Since the July meeting, Goslett says new data reveals that annual consumer inflation has reached another 13-year high, increasing to 7.8% in July from 7.4% in June. At their previous meeting, the MPC stated that the aim of policy is to stabilise inflation expectations more firmly around the mid-point of the target band and to increase confidence of hitting the inflation target in 2024.
“Guiding inflation back towards the mid-point of the target band can reduce the economic costs of high inflation and enable lower interest rates in the future,” it said.
To combat rising inflation, Goslett says: “We are likely to experience another big increase from the MPC in September, possibly somewhere between 50 basis point to a full percentage increase,” he predicts.
With this in mind, does it mean that property is still a good investment right now? Real estate agents believe so.
Property investment is still the most reliable way to generate income over the long term, says Yolanda Cornelius of Just Property Zululand and Dolphin Coast.
“If you are an investor, it is best to invest in a property that will produce rental income year-round. Just make sure you understand all the costs associated with legal fees and are prepared for unexpected costs.”
Of course, if you buy the wrong type of property at the wrong time or in the wrong area, it would be a bad investment, but with the right advice, even inexperienced buyers can get it right, adds Shaun Dubois of Just Property Choice:
“The wealth that property investing can generate over time is phenomenal.”