Interest rates increase, but the long-term view is largely positive.

25 May 2023

In line with recent forecasts by economists and industry experts, today’s third interest-rate decision of the year by the SA Reserve Bank Monetary Policy Committee?(MPC)?has seen the prime interest rate rise by 0.50% to 11.75%. This is?not great?news for South African consumers who are already under financial pressure and?were hoping?for a reprieve?from the?current rate-hiking cycle.

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Jors van Niekerk, CEO of MortgageMax, acknowledges that while early indicators pointed to interest rates steadying after the 50 basis point rise in March, today’s increase?should be viewed in the broader macroeconomic context. “Given that inflation has continued to rise as a result of ongoing load shedding and the weakening of the rand, it was expected that the?MPC would vote in favour of another increase in an attempt to bring inflation within the Reserve Bank’s target range of 3%–6%. We?remain optimistic, however, that we are approaching the?end of the current?cycle and that rates?will start stabilising and hopefully head downwards later this year and into 2024.”

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Some good news is that the banks’ appetite for lending remains?and 105% and 110% home loans are still being granted, which is hugely valuable in helping homebuyers afford?the associated costs of?homebuying.?

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Other positive news is that?semigration is ongoing and the local economies of the Western Cape, KwaZulu-Natal and the Eastern Cape are being boosted by increased?property purchases in these?three?coastal provinces. The Western Cape remains an attractive destination thanks to its superior service delivery and infrastructure and this is reflected in the province’s average house price, which was 28% higher than the national average last year. The Eastern Cape is also showing impressive growth, placing third in terms of nominal growth?of home prices in the 12 months ending April 2023.?

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“There’s no denying that this year has been?challenging?for South African consumers,” says Van Niekerk. “But it’s worth bearing in mind that while interest rates have increased?since?the pandemic,?current rates?remain?well below historic levels,” he concludes.?