Your Bank Balance Might Take a Hit This Month

Your bank balance might take a hit this month, and no, it’s not just the price of petrol or the skyrocketing cost of your morning latte. The Monetary Policy Committee (MPC) at the South African Reserve Bank (SARB) has officially decided to increase the repo rate by 25 basis points to 7%. This means the prime lending rate, the number that actually dictates what you pay on your home loan, has climbed to 10.5%.

Governor Lesetja Kganyago announced the news this Thursday afternoon, explaining that four members of the committee backed the hike while two wanted to keep things exactly where they were. The bank is worried that rising inflation and global tensions are going to make life too expensive for too long, so they’ve opted for this hike to keep prices under control. This decision is effective from tomorrow, 29 May.

The committee agreed that inflation risks had intensified, and that the challenge of large and overlapping shocks would likely trigger second-round effects, requiring a monetary policy response. Our decision was aimed at managing risks and ensuring that inflation returns to target.

For those of you looking to buy a house, this news is definitely not the highlight of your year. Adrian Goslett, the CEO and Regional Director of REMAX Southern Africa, points out that people will now have to be a lot more careful with their budgets. He suggests that now is the perfect time to clear out unnecessary debt if you’re planning to get into the property game. Despite the gloomy outlook, he insists that property remains a stable long-term play for anyone with a bit of patience.

Not everyone is seeing it that way, though. Herschel Jawitz, the CEO at Jawitz Properties, says this is a bit of a shock to the system. Everyone was expecting a couple of rate cuts this year, hoping the prime rate would drop to 9.75%. Instead, we’ve got fuel prices rising and interest rates going up, all within a short three-month window. Even so, he notes that demand for housing across South Africa is still stronger than the available supply.

Samuel Seeff, the chairman of the Seeff Property Group, didn’t hold back his frustration. He believes the move is entirely premature and is effectively punishing consumers for price spikes caused by international issues rather than local spending. He pointed to the country’s 32.7% unemployment rate and a disappointing 1.2% GDP growth forecast as reasons why the bank should have focused on stability instead of hiking rates.

The mortgage world isn't closing its doors, despite the grumbling from industry leaders. Mortgage originator ooba is still reporting that about 84% of bond applications are getting the green light. They’ve also noticed that banks are asking for lower deposits, currently averaging around 12.8% compared to the 15.4% seen previously. If you’re a savvy buyer, the environment is still open for those willing to hunt for a deal.

The property market is currently seeing year-on-year property price growth of 5.4%, which is the highest it has been since 2021. Back then, things were different because rates were at record lows during the post-Covid recovery. Now, the market is sitting about 20% lower than its peak during that period. The market will likely stabilize soon once those high fuel costs start to drop.

The Numbers Behind the Move

  • The new repo rate stands at 7%, while the prime lending rate is now 10.50%.
  • South Africa’s current unemployment rate is recorded at a staggering 32.7%.
  • The annual property price growth has reached 5.4%, reflecting persistent market demand.
  • Mortgage approval rates from ooba are holding steady at 84% despite the tightening cycle.
  • Average deposit requirements have decreased to 12.8%, showing that banks are still competing for home loan customers.