SARB’s announcement was widely welcomed, although a much-anticipated interest rate cut failed to materialise, with the prime lending rate remaining at 11.75%.
“All signs at the end of last year pointed towards the beginning of a downward interest rate cycle in the near future. Unfortunately, inflation just hasn’t played along yet,”says Leonard Kondowe, National Manager at Rawson Finance. Kondowe says local factors like loadshedding, logistical constraints, government debt and the outbreak of Avian Flu have all contributed to higher-than-expected inflation. This has been exacerbated by ongoing global conflicts and geopolitical tensions, high US inflation and interest rates, and a struggling rand.
“Realistically, we’re now looking at interest rate cuts to gradually start from the next quarter of 2024,” says Kondowe. “For homeowners – and any other South Africans paying off prime-linked loans – this means buckling up for a few more months of lean times ahead.”
He urges a proactive approach for those struggling to keep up with their debt repayments.“If you are at all uncertain of your ability to meet future bond repayments, do yourself a favour and speak to your lender today,” he says. “You’ll be amazed at how open they are to finding a workable compromise that will minimise the potential of you getting into real difficulties and potentially losing your home.” Kondowe also recommends taking stock of your financial commitments to minimise any unnecessary expenses sooner rather than later.
“Take a close look at recurring expenses like subscriptions, memberships and contracts and ask yourself whether they’re really delivering value for money,” he says. “Also consider removing the temptation of store accounts and credit cards – you’d be amazed how quickly these short-term debts add up and erode your disposable income.”
For those able to create a little financial wiggle room, Kondowe strongly advises putting every available cent towards home loan repayments.
“This is a great way to reduce the overall interest you pay on your loan, and give yourself a little financial cushion in the form of accessible equity in your bond,” he says. “It’s very easy to set up a recurring transfer that automatically supplements your bond repayments each month, putting your hard-earned money to work in your favour while keeping it out of reach of passing temptation.” As for how the property market will respond to the interest rate announcement, Kondowe remains positive.
“With cuts still on the horizon, we expect activity to continue increasing steadily. Cash buyers will still remain active, as will those with more resilient finances able to weather a few months of higher repayments in order to benefit from advantageous property prices and the future interest rate decline. As for first-time buyers, it will be beneficial for them to get a prequalification before they enter the property market so they know exactly what they can afford and plan their finances accordingly. ”