Following a series of interest rate hikes, South Africans should brace themselves for some more bad news ahead of the coming announcement set to be made on 17 March at the next MPC Meeting. With CPI sitting at 5.7% in January 2022, it seems all but likely that interest rates will again climb following this meeting.
“The MPC’s core function is to combat inflation,” says Adrian Goslett, Regional Director and CEO of RE/MAX of Southern Africa. “Considering the risks posed to our inflation levels – such as rising fuel prices, ongoing loadshedding, as well as the global uncertainty surrounding the Russia-Ukraine conflict – it seems highly probable that interest rates will again climb at this meeting,” he predicts.
This poses risks to the local property market, as home loan repayments increase alongside every interest rate hike. “Rising fuel prices, higher electricity costs, and higher food costs mean that one’s spending power has already diminished. If interest rates climb, homeowners who are already feeling overextended might not be able to afford this additional cost, albeit a relatively small increase to the monthly repayment amount on one’s home loan,” Goslett explains.
But, while debt becomes more expensive with every interest rate hike, savings and investments earn higher interest with every increase. According to Goslett, this encourages homeowners to direct any spare cash into saving or investment vehicles. “It is always advisable to have a diverse investment portfolio. Investing in both physical real estate as well as in money markets and investment funds disperses one’s risk and allows one to benefit from a multitude of circumstances,” he states.
He furthers this by explaining that real estate is an appreciating asset – the sooner it is paid off, the sooner homeowners will enjoy the financial rewards. “That is why I usually recommend that when interest rates are low, continue to pay extra into the home loan to reduce the outstanding debt. When interest rates climb, you are then also accustomed to paying the higher monthly instalment.”
Whatever the outcome is at the next interest rate announcement, Goslett encourages homeowners to leave themselves some breathing room so that they are never backed into a corner. “Pay off any outstanding debts and put money into savings wherever possible, because interest rates will, in all likelihood, increase throughout the year. And, even if they don’t, minimising debt and increasing savings will always leave you in a better financial position regardless,” he concludes.
