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No further hike in interest rate expected

2008-04-14

The Reserve Bank’s Monetary Policy Committee (MPC) decision to raise the prime lending rate to 15% would have come as a large blow to property owners, says Tony Clarke, MD of Rawson Properties. This rate hike, he says, brings the total rate increase to 4,5% since mid-2006.

“Higher fuel prices, increasing food prices and now higher repayments for basic housing is stretching the South African consumer to the limit,” says Clarke. “Banks are reporting a quarter-on-quarter rise in bad debt as more and more homeowners realise that servicing their monthly debt is now almost impossible.”

According to Clarke, this should be the last interest rate hike for a while and the last attempt to curb inflation. “The Governor should now be focussed on growing our economy. It will take at least six to eight months to see the real effect this rate hike will have on inflation, so lets be patient for those results before we rush into any more rate hikes”.

He urges those who are experiencing difficulties with being able to meet the higher repayments to immediately contact their banks to explore the various options available which could include a fixed-rate mortgage contract, an extension of the term of an existing mortgage loan or the consolidation of debt into a home loan. Repossession and an adverse credit record should be the absolutely last option.

“The increased mortgage rates will also further slow down sales in the property market as more of the lower to middle income consumers will now not qualify for the same loan they would have just 18 months ago. Affordability will play an ever increasing role in the growth of the lower end of the market, which in turn, will increase return on investment property as residential rentals are expected to increase substantially when annual escalations occur at the end of current lease agreements.”

Clarke says that he is expecting property growth to continue at levels of between 8% and 10%, gradually increasing in early 2009 to 12%. “Investors”, he says, “will take advantage of this period of bottoming out by purchasing as many units as they can get their hands on, or utilise the maximum amount of financing available under the stricter lending conditions of the National Credit Act.”