Interest rate adjustments are a bit like speed bumps – they sometimes pop up when one least expects them, but they are effective in controlling speeding.
Neil Abernethy, a spokesperson for Tyson Properties, noted that South Africa’s precarious balance between high debt and low savings left the Reserve Bank little choice but to hike the interest rate by a defensive 0.25 basis points today to prevent the economy from overheating and protect the rand in the face of continued global geopolitical uncertainties and fuel hikes stemming from the war in the Middle East.
This adjustment brings the repo rate back to 7% and the prime lending rate to 10.5% which would have been unexpected at the beginning of the year when a period of stability and even further interest rate drops was expected.
Abernethy notes that Statistics SA this week reported that, in April, inflation had hit the upper end of the Reserve Bank’s inflation tolerance band of 4%. Further inflation pressures are inevitable, and he envisages the property market entering into a potential tightening cycle from a position of strength.
However, he adds that there is a positive silver lining - South Africa’s central bank has its hand firmly on the wheel and will again steer away from high interest rates just as soon as broader economic conditions allow.
Better Bond’s National Head of Sales, Bradd Bendall, believes that the property market has inbuilt resilience with the 10.5% prime rate still being significantly lower than the 11.75% high in 2024.
“This interest rate hike may not be ideal but the property market is in a strong enough position to absorb the impact. Over the past few months, we have seen growing investor confidence, steady home loan application growth, and record cost prices for both first time and repeat buyers. In fact, applications are up more than 6% year on year,” he points out.
He notes that although affordability pressures remain, especially for first time buyers, demand in sought after markets continues: “The fundamentals of South Africa's housing market remain solid and buyers who plan carefully can still afford opportunity in the current market. For example, on a R2 million bond, monthly repayments will still be roughly R1,700 cheaper than they were two years ago, offering some comfort to over-extended consumers.”
