Interest rates hike ‘threat to housing market’

South African consumers will probably continue to face stricter lending regulations by banks following the SA Reserve Bank’s (Sarb) decision to increase the repo rate by 25 basis points to six percent. Interest rates effectively increased to 9.5 percent per annum.

Gary Palmer, chief executive of Paragon Lending Solutions, said: “An interest rate hike has been on the cards for a long time, especially with higher inflation, fuelled by petrol and food price hikes and the devaluing of the rand which may further reduce business confidence.

“As such, all indications are that consumers will battle with the price hikes and consequently default on loan payments and lead to banks, once again, tightening their lending restrictions.”

Kay Geldenhuys, property finance processing manager at bond originator firm, ooba, said the interest rate increase could negatively impact the residential housing market.

“Many consumers are already dealing with elevated levels of debt and the rising cost of living expenses. The repayment on a R1 million home loan over a 20 year period will now cost the homeowner an additional R163 per month, which adds up to an extra R1 956 per year. Housing affordability will become more constrained for prospective homebuyers as a result of this latest rate increase.”

Geldenhuys said Reserve Bank governor Lesetja Kganyago painted a picture of a constrained economic outlook, citing the recent heightened uncertainty related to the debt crisis in Greece and the sharp decline in equity prices in China as contributing factors.

“Locally, he cited the electricity supply constraints and weak business and consumer confidence as contributing factors to a cautious domestic growth outlook.”

Arthur Kamp, investment economist at Sanlam Investments, said headline consumer price index (CPI) advanced just 4.7 percent in the year to June this year.

Kamp said the MPC noted that inflation was expected to breach the six percent upper end of its target range for two consecutive quarters in Q1 and Q2 of 2016.

“Also, given a still wide current account deficit, the bank is clearly concerned about the possible impact of the expected shift towards US monetary policy normalisation on the rand and hence domestic inflation. Even though the feed-through impact of rand weakness into inflation has been modest in recent years, wage growth is firm and inflation expectations for the next twoand-a-half years are sticky at around the upper end of the bank’s inflation target range.”

Seeff chairman Samuel Seeff expressed disappointment at the decision to hike the repo rate.

He said it was out of step with the economy and bad news for consumers, homeowners and buyers.

“While it is widely accepted that we are in an interest rate hiking cycle, we do not believe that now was the right time for a rate hike. Holding this off until later in the year, would have been preferred in view of the mounting challenges that consumers and homeowners face.”

Bill Rawson, chairman of the Rawson Property Group said: “The implementation of small interest rate hikes in the current South African economic conditions immediately deters many home buyers in the lowcost market from committing themselves.”

Andrew Golding, chief executive of the Pam Golding Property group said: “Recent market commentary in general provides a less optimistic economic outlook, with consumer confidence at a low level, manufacturing and mining production down, concerns around job security, and load shedding coupled with Eskom’s proposals to further increase electricity tariffs weighing further on South Africa’s weak economy.”

Golding said although the appetite for property acquisitions remained strong, some consumers were displaying an understandable tendency towards moderation rather than over-committing financially.

Adrian Goslett, regional director and chief executive of RE/MAX Southern Africa, urged homeowners and potential buyers to continue focusing on paying their debts and building up savings.

“Future rate hikes will impact on affordability levels and aspirant homeowners will need to be prepared for that.”

Neil Roets, chief executive of debt counselling firm Debt Rescue, said consumer debt now topped R1.427 trillion which proved that consumers were having a hard time.

“We know from figures released by the National Credit Regulator and Statistics South Africa that the majority of indebted consumers already owe 75 percent of their monthly pay to creditors. More than half are three months or more behind in their debt repayments.”


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