Debt holders are sure to feel the pinch following the latest announcement by the Monetary Policy Committee (MPC) to increase the repo rate by a further 50 basis points to 8.25%, leaving the prime lending rate at 11.75% – the highest it has been since 2009.
Unsurprised by this announcement, Regional Director and CEO of RE/MAX of Southern Africa Adrian Goslett says that managing debt will become a challenge going forward. This interest rate hike might push many consumers beyond what they can afford. “We have already noticed the shift in the property market where we are receiving more enquiries from sellers and less interest from buyers. Every interest rate hike reduces consumers’ spending power and their affordability levels get placed under further pressure. A hike like this is likely to cause activity within the property market to tighten even further,” says Goslett.
Following the latest hike, Goslett adds that good real estate professionals should be strongly encouraging their buyers to get preapproval before starting the house hunting journey to make sure they avoid the disappointment of discovering that they are unable to afford their dream home.
“Sellers should also guard against any real estate professional who tries to overprice the home just to land the sole mandate, as this can be detrimental to the sale, especially during this time. Find out what similar homes are selling for in the area and use this as a guide when setting an asking price. If an agent proposes a price that is way over the average selling price in your area, then it is unlikely to be fair market value for your home,” says Goslett.
“Most experts were hopeful leading up to the March announcement that the hiking cycle might be near its end. The current sentiment seems to point to this being the last hike in the cycle, but there is no guarantee of this as inflation continues to fluctuate from meeting to meeting. My advice to consumers is to always be prepared for at least a bump of 25 basis points at any point in time, as this will prevent them from being caught off guard,” he recommends.
As a final word of advice, Goslett encourages struggling consumers to reach out for help before things get too out of hand. “If you are struggling, the worst thing you can do is nothing. Arrange a free consultation with your local RE/MAX agent to find out how your local market is performing and what options exist that might improve your current financial position,” Goslett concludes.
