-->

Indebted to pay more

Reserve Bank expects inflation to average 6.8% in 2016 and 7% in 2017.

Hanna Ziady and Alex Mitchley

The South African Re­serve Bank’s decision to hike the benchmark repurchase (repo) rate by 50 basis points – off the back of a worsening inflation outlook – means that as of today it stands at 6.75%, or 1% above where it was less than 12 months ago.

This in turn means that banks’ prime lending rate, which is the rate they give to their most credit­worthy customers, has risen from 9.75% to 10.25% per annum.

“Lending rates have risen by a cumulative 175 basis points since the start of 2014 and the outlook is for interest rates to rise fur­ther during the course of 2016 in an attempt to curb inflationary pressures,” said Jacques du Toit, a property analyst at Absa Home Loans.

On a R500 000 bond, a 50 ba­sis point increase to the prime lending rate means an increase in repayments of R165 per month, according to Jawitz Properties CEO Herschel Jawitz.

“This may not appear to be particularly significant at first glance, but when added to the pre­vious rate hike it begins to add up. Even though demand may be slow, the [property] market will remain well balanced between sellers and buyers presenting opportunities for both parties to achieve fair deals,” he maintains.

While the residential market has continued to outperform a slow economy, weak consumer confidence driven by stock short­ages and good demand, there was a slowing in the rate of growth of house prices in 2015. It is likely that house prices, in real terms off the back of the latest rate in­crease, may decline in 2016.

Neil Roets, CEO of one of the largest debt management compa­nies in South Africa, Debt Rescue, said the announcement comes on top of proposed 8% increases in electricity rates and will have a devastating impact on consum­ers, especially those with heavy debt loads.

During the announcement, Reserve Bank Governor, Lesetja Kganyago, indicated the bank is in a “hiking cycle” but any further hikes to the repo rate would be highly “data dependent”. The Re­serve Bank expects inflation to av­erage 6.8% in 2016 and 7% in 2017. Rand weakness indicates that petrol prices may rise by 7c a litre next month, Kganyago said, elec­tricity prices could also increase. – news@citizen.co.za

info

How the interest rate hike will affect your pocket
Bond: R500 000
9.75% interest rate = R4 743 monthly bond repayment
10.25%= R4 908 per month
Bond: R800 000
9.75% interest rate = R7 588 monthly bond repayment
10.25%= R7 853
Bond: R1.5 million
9.75% interest rate = R14 228 monthly bond repayment
10.25%= R14 975

Need immediate financial help?

Thank you!

We look forward to the opportunity to get you debt-free!

Subscribe to Our Weekly Email