Good and bad in rate increase

There is good news and bad news in today's interest rate announcement by the Reserve Bank.

The good news is that the economic growth forecast for SA has been raised to 2 percent this year from 1.7 percent just two months ago, which in due course should translate into more employment opportunities.

At the same time, the rand has been strengthening in anticipation of today's rate increases, and this will help to contain the "imported inflation" that SA experiences due to higher global prices for fuel and basic foodstuffs.

This will hopefully bring some relief to the many households already struggling to make ends meet.

The bad news is that the rate increase, which takes the prime rate from 7,5 percent to 7,75 percent, will bring about increases in all debt repayments, including those on credit and store cards, car finance and home loans.

On a home loan of R2m at prime, for example, it will add some R300 to the monthly installment. Being the third such increase since the November meeting of the MPC, this means the repayments on a R2m loan have increased by more than R900 in the past six months.

And more interest rate increases are on the way this year, so our advice to existing homeowners is to do keep paying any spare cash they have into their home loan accounts to reduce the capital balance and thus the minimum monthly payments required.

When it comes to new home buyers, our advice would be to enter the market as soon as possible, because rising interest rates are going to increase demand and prices in the lower price categories, where there is already a shortage of stock. The demand will be coming from people trying to downsize and downscale as well as new market entrants.

However, first-time buyers will need to be very careful now not to overcommit themselves financially, and should take future bond rate increases into account when calculating what they can afford to buy. It would be most helpful to them to obtain pre-qualification through a reputable bond originator and to work with qualified and registered estate agents to find suitable properties that match their budgets.

24 Mar 2022
Author Chas Everitt

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Good and bad in rate increase