The MPC is set to make their interest rate announcement again on 23 November 2023. Most economists predict that interest rates will be raised by yet another 0.25% which would bring the Prime Lending Rate up to 12%.
The interest rate hiking cycle was paused at their last meeting in September and many remained hopeful that that would mark the end of the cycle. However, after inflation increased to 5,4% in September from 4,8% in August, most have since changed their predictions and are expecting interest rates to climb in November.
Regional Director and CEO of RE/MAX of Southern Africa, Adrian Goslett, says that if interest rates do rise, this will put some strain on the property market. “As things stand, many homeowners are struggling to keep up with the repayments on their home loans and our distressed property department has never been busier,” he notes.
The property market as a whole has experienced a decrease in the number of transactions recorded. According to the RE/MAX Q3 20223 National Housing Report, the national total is down by 20% YoY while the number of transaction for the RE/MAX SA network is down by 12.9% YoY. “With every interest rate hike, fewer buyers are able to afford the rising cost of home finance, which automatically decreases the potential buyer pool and lessens that demand for property,” he explains.
Seeing that it would be wishful thinking to hope for an interest rate cut at the November meeting, Goslett says that the best possible outcome for the next meeting would be if the MPC were to decide to hold interest rates steady, as this would allow the market some more time to find ways to manage their debts and cope with the higher repayments.
“As much as I hope that interest rates will hold steady, it is still likely that they will increase at the November meeting. My advice to those who are already struggling to make ends meet is to carefully review your budgets ahead of the next MPC meeting and to find qualified help if you are feeling like you are in over your head,” says Goslett.
Homeowners and buyers, how to cope with higher interest rates
While the Seeff Property Group continues to advocate strongly for lower interest rates as the higher rates are stifling the economy and property market, the reality is that the higher rate may be with us for a while longer.
While we cannot control that, making some adjustments can help consumers, homeowners and prospective buyers navigate the new market realities much better. Sellers and buyers must adjust their outlook, says Seeff. If you are selling, you may now need to relook your asking price.
If you are buying, you need to adjust to higher repayments, or you could buy for slightly less to ensure you have a financial buffer. Samuel Seeff, chairman of the Seeff Property Group says, the good news is that the banks are still lending and qualifying buyers can still find favourable terms.
Recognising the impact and making some adjustments can go a long way. Start by reviewing your budget and making adjustments. Look at where you can cut by cancelling unnecessary subscriptions and shopping around for cheaper insurance premiums.
You should focus on reducing your debts. Financial planners suggest paying a little extra every month on your debts, or focus on reducing high-interest debts such as credit and store cards first. This will free up cash to further reduce your debt. Do not make further debt, rather cut back on your living costs.
You could also look at accessing surplus funds in your mortgage loan. If you have an access bond, you could access any surplus funds that you have accumulated to pay off some debts. This will require a new bond to be registered which will be based on the latest value of your property.
If you are struggling to pay or are falling behind, you should look to arrange new payment plans. Debt counsellors suggest that you do not wait because it will just get worse. Rather contact the lender or retail store to make new arrangements. You should aim to avoid bad debts and a negative impact on your credit score.
Your home is vital. Avoid financial distress on your home loan by immediately contacting your mortgage bank if you are battling to keep up with the repayments so that you can make alternative arrangements.
If you are selling for urgent financial reasons, you should be upfront with the agent so they can assist you in the best way possible.
You could also consider downgrading your property. There are many options. You may be at a life stage where you could downgrade your home and benefit from an easier lifestyle and added cash by going smaller.
Distressed property
Giel Viljoen, Principal at Leapfrog Stellenbosch, offers advice on how to best deal with a distressed property.
Distressed is the term used to refer to a property where the homeowner can no longer afford the bond repayment and has consistently missed payments – the property is then “distressed”.
Act fast, and decisively
The moment you realise you may not make your next payment is the moment you need to get in touch with a property advisor as well as the bank with which you have the mortgage. Be upfront about your situation. Inform the bank of your position before they take legal action, while at the same time working with a trusted agent to get the property on the market as soon as possible.
The goal here would be to sell the property as quickly as possible to recover costs and settle with the bank before they take the legal steps that put the foreclosure process into motion.
Take note
Work with a reputable property advisor to ensure the selling price is exactly right for the market. The right price almost guarantees a faster sale, which in turn can help to minimise further loss.
Furthermore, if there is any equity in the bond, selling faster means there’s a chance of covering both the outstanding bond and other debt with the proceeds from the sale.
Being forced to sell your property because of a change in your ability to afford is a terrible fate, and one that few homeowners anticipate. It’s crucial to act fast and sell as quickly as possible – before the debt burden spirals out of control. It’s also important to maintain a favourable credit record, for when the tides turn, and you’re in a position to afford a property again.
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