Category RealADVICE
Homeowners advised: Get into extreme savings mode
With inflation running at a 13-year high of 7,4%, it is really no surprise that the Reserve Bank has chosen to hike interest by 75 percentage points this month and take the prime rate and home loan base rate to 9%, says Gerhard Kotzé, MD of the RealNet estate agency group.
"In doing so it is following global trends and anticipating an increasing need to protect the Rand. The inflation rate is currently running even higher in the UK (9,4%), the US (9,1%) and other developed economies, and as their central banks raise interest rates to try to curb this, SA has to compete to attract foreign investment by offering rates that still hold out the prospect of good returns, despite the higher risk associated with investing in a developing economy.
"This keeps the Rand relatively strong, and hopefully ensures that SA does not experience even worse "imported" inflation as it pays for oil and other imports in dollars, pounds and euros."
Meanwhile, he says, the most recent rate increase - the fifth since November 2021 - is a sharp reminder to those who are already homeowners to pro-actively manage their incomes and search for more ways to trim expenses to avoid the possibility of defaulting on their bond repayments.
"The hike increases the minimum monthly repayment on a R1m home loan by around R480, and of course also increases the repayments on all other debts like car finance and credit cards. What is more, rates are expected to rise even further by the end of the year, so now is the time for consumers to be scrutinizing their household budgets with a magnifying glass.
"Even those small economies that are often dismissed as 'old fashioned', like packing your own lunch, turning off lights when you leave a room, being careful about running heaters in winter, wrapping your geyser, putting a timer on your pool pump and car-pooling for trips to work and school can make a significant difference when the savings are added up.
"Other things that consumers need to keep an eye on are cell phone expenses, any kind of subscriptions, medical aid and other insurance costs, and online buying. It is all too easy to spend more than necessary on these items if they are just being automatically deducted from your bank account or paid with a credit card.
"And for those who can afford it, now is the time to be installing a solar power system and other energy-saving equipment that will not only cut their electricity bills but also add to the resale value of their homes."
As for prospective buyers, Kotzé does not expect today's rate increase to dampen the strong demand for homes that was unleashed in June 2020, when interest rates were reduced to their lowest levels in almost 40 years.
"Even at 9%, the home loan rate is below what it was before the Coivd-19 pandemic, and we have seen no less willingness to buy since the interest rates started to rise in November.
"What is happening, however, is that new entrants to the market are becoming increasingly value-conscious, with the result that sellers need to price really carefully, bearing in mind the declining affordability of buyers. They should also be willing to negotiate, always with the help of an experienced agent who is trained to achieve the best possible outcome for both parties."
Author: RealNet
