Homeowners slammed with hefty interest rate hike – and it may not be the last after all

Today’s interest rate hike was largely unexpected by homeowners. Picture: Andrea Piacquadio/Pexels

Today’s interest rate hike was largely unexpected by homeowners. Picture: Andrea Piacquadio/Pexels

Published Mar 30, 2023


Some experts predicted that today’s interest rate would be increased by 0.25% while others expected it to remain unchanged; none of them were correct.

Instead, the South African Reserve Bank (SARB) has hiked the repo rate by 0.5%, a massive blow to homeowners who are already struggling to make ends meet.

Many have even been forced to give up their homes.

Although property experts are holding out hope that the increase will be the last, and that the prime lending rate will eventually start to come down as early as the end of this year, it does not change the fact that life has just become that much more difficult for South African homeowners.

There are even concerns that this may not even be the last interest rate hike.

Given the country’s difficult economic position, Samuel Seeff, chairman of the Seeff Property Group, acknowledges the “difficult decision” that was faced by the SARB, but believes that today’s hike was “a bit steep”.

“The SARB could have kept it to 0.25%.”

However, he says 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”.

With consumers under increasing pressure from the rising cost of living and a series of interest rate hikes since late 2021, Andrew Golding, chief executive of the Pam Golding Property group, says it was hoped that the Monetary Policy Committee (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 that have taken interest rates to above pre-Covid levels.

“While higher-than-anticipated inflation was a contributory factor, this ninth increase today, which takes the repo rate to 7.75% and the prime interest rate to 11.25%, is a bitter pill for households and businesses with mortgages and credit finance...”

Jawitz Properties chief executive Herschel Jawitz, says today’s hike continues to show the uncertainty around both local and global inflationary outlooks.

“In the short term, the latest increase in the repo rate will undoubtedly put homeowners and consumers under more pressure...

“On a R1 million bond, the monthly repayments will increase by R341. However, since the start of the rate-hiking cycle, rates have increased by more than 50%, from 7% to 11.25%. On the same R1m bond, the repayments have increased from R7 753 to R10 493 per month. That’s an increase of 35% in after-tax money, which is significant.”

Following the rate hike, Seeff says the monthly bond repayments over a 20-year term will increase by approximately:

  • R750 000 bond – extra R255, from R7 614 to R7 869
  • R900 000 bond – extra R306, from R9 137 to R9 443
  • R1m bond – extra R341, from R10 152 to R10 493
  • R1.5m bond – extra R511, from R15 228 to R15 739
  • R2m bond – extra R339, from R20 305 to R20 985
  • R2.5m bond – extra R424, from R25 381 to R26 231

While the rate hike would have come as a disappointment to South African homeowners, Carl Coetzee, chief executive of BetterBond, says it was not unexpected when viewed against the backdrop of inflation edging higher than had been forecast. Still, a prime lending rate of 11.25% will impact consumer spending “at a time when our country is having to contend with load shedding, high fuel and living costs, and rising food inflation”.

Adrian Goslett, chief executive of RE/MAX of Southern Africa, says this interest rate hike will undoubtedly be the most challenging for those who bought when interest rates were at their lowest.

“I’m sure most buyers plan for at least a handful of interest rate hikes, but I doubt very many would have left room in their budgets for the interest rates to climb so consistently over the past fifteen months or so.”

Dark cloud, silver linings?

Even though this hike was not ideal, Seeff says the interest rate is still below the historic average of the past 20 to 30 years.

Furthermore, Coetzee believes this is “likely to be the last rate hike for a while” as the Reserve Bank is “widely expected to adopt a more accommodative stance in the coming months, to kick-start the economy”.

Tony Clarke, managing director of the Rawson Property Group says there was no doubt that the interest rate would go up again this month as inflation has remained “stubbornly” outside the target range of the Reserve Bank.

“Opinions definitely seem to be trending towards interest rates remaining where they are for some time to come. Some analysts are even predicting the beginning of a downward cycle as early as late 2023.”

But Golding questions whether today’s hike will really 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.

“However, against the backdrop of a global economy still normalising from the effects of the pandemic and the outbreak of the first major war in Europe since WW2 – which has impacted the rest of the globe due to globalisation of energy and food markets, as well as the recent turmoil in the global banking sector – some analysts feel there may be yet another interest rate hike before it stabilises.”

Goslett, though, remains hopeful that interest rates will stabilise following today’s meeting.

“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 whether the MPC decides that the risks to inflation are under control.”