Johannesburg - Activity in both the new vehicle market, particularly the car market, and housing market are expected to be depressed by the latest increase in interest rates by the Reserve Bank.
The monetary policy committee at the Reserve Bank on Thursday raised the repo rate to 6 percent from 5.75 percent, resulting in the prime lending rate increasing to 9.5 percent.
Nico Vermeulen, the director of the National Association of Automobile Manufacturers of South Africa (Naamsa), said on Friday that the hike in interest rates would be negative, adding that when interest rates increased, new vehicle sales declined.
Deterioration
Vermeulen said there had already been a steady deterioration in new vehicle sales, particularly in the new car market, and there was no doubt the rise in interest rates would accelerate this process.
Rudolf Mahoney, the head of brand and communication at WesBank, said the rate hike would affect buyers who had vehicle finance agreements structured around a linked interest rate. For a car loan of R250 000, financed over 60 months at an interest rate of 10.5 percent, the interest rate would now be 10.75 percent, resulting in a monthly instalment that was R31.15 higher at R5 486.13.
Mahoney said consumers who had home loans would be more severely effected, while those who had additional debt would find the increased loan repayments eating into their disposable income.
“This hike in the interest rate, combined with a depreciating rand, will continue to affect living costs and put pressure on consumers’ highly constrained budgets. The net result is that consumer confidence will remain subdued, ultimately impacting new vehicle sales and the gross domestic product,” he said.
Further hikes
Jacques du Toit, a property analyst at Absa Home Loans, said lending rates had been hiked by a cumulative 100 basis points since the start of last year and further rate hikes were expected towards the end of this year.
Du Toit said rising interest rates would drive debt repayments and debt service costs to higher levels, affecting household and business finances, consumer and business confidence, the demand for and affordability of credit, and consumption expenditure and fixed investment.
Neville Berkowitz, an adviser to Homebid, the low commission estate agency, said 65 percent of the 6.1 million formal homes in South Africa did not have a mortgage bond and these homeowners would be less directly affected as interest rates rose.
“Our research reflects that the majority of South African homeowners are not going to be directly financially compromised by the looming increase in interest rates as two out of three homeowners did not have mortgage bonds on their homes,” he said.
Mike van Alphen, the national manager of Rawson Finance, said even the smallest rise in interest rates immediately reduced the call for bonds by 10 to 15 percent, although this was often only temporary.
Van Alphen added that more than half of South Africa’s credit active population were already debarred from obtaining bonds because of impaired credit records and the industry could not afford to have more potential buyers sticking to the rental market because they were unsure of their financial futures.
Business Report