The recent interest rate hike at a time when the economy is already weak will continue to dampen confidence in the property market and sustain its gradual correction, says FNB economist John Loos.
The Reserve Bank’s Monetary Policy Committee (MPC) hiked the repo rate by 25 basis points to 6.75% (from 6,50%), increasing the base home loan rate to 10.25% (from 10%).
The hike, agrees Mike Greeff, chief executive of Greeff Christies International Real Estate, will contribute to the slowing of the property market in the country.
“It will probably be felt the most by the lower and middle sectors of the property market.
“Lending institutions will in all likelihood implement more stringent lending measures which would most likely have a dampening effect on new bond applications from first-time buyers."
Rudi Botha, chief executive of bond originator BetterBond says the rate increases will make it more difficult for first-time home buyers to save up deposits and to qualify for bonds. “They will most likely either have to postpone their purchase or opt for a cheaper home…”
Hard-hit consumers will now have to dig deeper to not only fork out more for increased monthly bond repayments but also higher monthly repayments on every other form of debt, including car finance, credit cards, store accounts and personal loans.
Botha says for homeowners with bonds, the interest rate increases will add at least R16.60 per R100 000 borrowed to their monthly repayment.
"So on a 20-year loan of R1m, for example, the monthly installment will rise by at least R166 and possibly more, depending on the current interest rate that the borrower is paying.”
Coming on the back of an unsurprising inflation rate increase to 5,1% in September (from 4,9% in August), “this suggests a pretty lean festive season for most households - and is all the more reason for consumers to watch their ‘Black Friday’ and Christmas spending very carefully”.
Given that the hike came into effect on Black Friday, and weeks before the Christmas season, when retailers hoped to boost ailing sales, it beckons a bleak period for retailers and consumers alike.