Brace for yet another interest rate hike

The Monetary Policy Committee is set to meet again and deliver their decision around interest rate policy on 24 November 2022. Experts predict that another hike is to be expected.

“My prediction is that there will be another interest rate hike, probably not as severe as previous hikes but somewhere between 0.25% or maybe 0.5% because SARB will most likely still be trying to curb rising inflation,” says Adrian Goslett, Regional Director and CEO of RE/MAX of Southern Africa.

If this is the case, Goslett says that affordability will then become a concern for the homeowner. “It will become more difficult to service loans as interest rates climb, which is why we’ve been encouraging homeowners for a while now to reduce their debt levels to be able to accommodate for this.”

Barbara Larney of RE/MAX Wine and Whales explains that rising interest rates make buying or selling a home more difficult and decreasing interest rates make buying and selling easier. As interest rates increase, affordability decreases.

“But, if the economy grows fast enough, rising interest rates will not greatly affect property value and housing prices. There's always a light at the end of the tunnel in real estate. It's just a matter of finding that opportunity in the current market. For example, even if the economic uncertainty causes the housing market to cool, this could potentially open opportunities to purchase properties at reduced prices,” she suggests.

“Buying a home as interest rates are rising is nothing to fear. From a historical standpoint, the prime rate was 25% at the start of 1994 and decreased to 7% at the end of 2020. Now at 9.75%, the rate is low. And still cheaper than historical comparisons,” says Larney.
The bigger concern, according to Goslett, is if you look ahead to next year and you take into consideration what many economists are predicting. “South Africa’s GDP is probably going to shrink slightly in 2023 and if that happens, this will impact unemployment rates and put greater pressure on tax-paying citizens above and beyond the increasing interest rates. While interest rates are still manageable at this point in time, I recommend that all homeowners make sure to put themselves in a position to be able to afford the higher repayments on the home loan as well as other debts they might hold. This will ensure that they are in a good position if, as many economists predict, we head into leaner times in the year ahead,” Goslett concludes.