South African Households Struggle with Rising Interest Rates Amid Economic Challenges in 2023

by | Apr 19, 2023

South African Households Struggle with Rising Interest Rates
South African Households Struggle with Rising Interest Rates

South African Households Struggle with Rising Interest Rates: Experts Raise Concerns

The Reserve Bank’s Monetary Policy Committee (MPC) recently implemented a 25 basis point hike, exacerbating the financial strain on South Africans grappling with declining incomes and soaring living costs.

Raising Alarm in Distressed Property Market

Increasing concerns are evident across various sectors, most notably in debt-related industries like the property market.

Neil Roets, Debt Rescue CEO, stresses that the latest hike spells disaster for South Africans repaying debts on properties, vehicles, and credit cards. He cautions that consumers are barely coping, with minimal room for adjustment.

Take Advantage of the equity in your property

Take-home pay in South Africa

BankservAfrica’s recent data indicates that real average take-home pay in South Africa fell by nearly 5% in December 2022, capping off a year of income difficulties.

As 2023 unfolds, South African households continue to face persistent challenges such as regular load shedding, skyrocketing food prices, and impending electricity price hikes in April, further aggravating the country’s living expenses.

The recent interest rate increase in South Africa

The recent interest rate increase, though expected, adds more pressure on households, particularly those already overburdened by debt.

A TransUnion Consumer Pulse survey reveals that 38% of consumers still struggle to fully pay their bills and loans despite cutting discretionary spending.

Moreover, analysts report that the South African Reserve Bank’s (SARB) outlook seems hawkish, suggesting another potential rate increase at the next meeting if upside risks materialize.

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Soaring Interest Rates Affect Property Sector

Yael Geffen, CEO of Lew Geffen Sotheby’s International Realty, observes that South Africans are struggling to cope. She points out that average salaries nationwide fell by 6.9% last year, while monthly mortgage payments for a new R2 million home loan at the prime rate have risen by R4,800 since November 2021.

Greg Dart, director of High Street Auctions, shares similar concerns, stating that saving has become unattainable for most South Africans, and the first half of 2023 will be challenging.

Dart adds, “Investors are likely to adopt a cautious wait-and-see approach, and the residential market will likely experience the impact of more properties becoming available with a limited pool of buyers able to commit.”

Fewer South Africans can afford to purchase homes

As a result, fewer South Africans can afford to purchase homes, with only the wealthy able to manage higher home loan repayments. The ongoing hike cycle has reduced the number of first-time homebuyers, and increasing debt costs are forcing people to downsize.

Chris Tyson and Nick Pearson of Tyson Properties assert that properties priced under R3.5 million have been severely impacted. Loan repayments for these properties have increased by R590 per month, resulting in monthly payments of R35,533.

However, different market areas will face unique consequences. Pearson notes that the rate hike is unlikely to affect demand or slow the more robust property market in the Western Cape.

Recent Lightstone data highlights activity within the high-value property sector, revealing that mid-value and high-value segments have sustained the markets at 37% and 32%, respectively, over the years.

Samuel Seeff, chairman of the Seeff Property Group, anticipates that despite a smaller pool of potential buyers, especially those facing financial difficulties, the market will maintain consistent activity and achieve stability.

He also mentions that banks continue to offer support by maintaining favorable mortgage lending conditions.

Enhancing Homeownership Affordability

To enhance homeownership affordability, banks are also offering higher loan-to-value (LTV) ratios.

Rate Forecast

Luigi Marinus, a portfolio manager at PPS Investments, believes that the current hiking cycle, while ongoing, is more moderate than previous increases with a 25 basis point hike.

Marinus explains that the governor emphasized the MPC’s primary objective is to

achieve price stability in the country, using interest rates as the most effective tool.

As a result, the MPC is expected to consider further interest rate hikes if inflation does not decline as predicted. Marinus notes that the governor was firm in stating that no terminal rate forecasts were made. This suggests that the MPC will remain committed to taking the necessary measures to control inflation and maintain economic stability, which may include additional interest rate hikes in the future.

Real Estate Assist solutions to help homeowners struggeling with mortgage payments

Real Estate Assist (www.realestateassist.co.za) offers various solutions to help homeowners and prospective property buyers in South Africa, particularly those facing financial challenges due to rising interest rates and other economic factors. Here’s how Real Estate Assist can help:

  1. Stop Foreclosure and Legal Action: Real Estate Assist can work with homeowners at risk of foreclosure or legal action due to missed mortgage payments, helping them negotiate with creditors to find viable solutions that prevent the loss of their homes.
  2. Unlocking Equity from Property: Homeowners can use Real Estate Assist’s services to unlock the equity in their homes, providing much-needed financial relief during difficult times. This can help address pressing financial needs, settle debts, or even improve cash flow.
  3. Debt Consolidation and Financial Recovery: Real Estate Assist can help homeowners consolidate their debts and improve their credit scores through their financial courage program. This program assists clients in recovering from short-term debt challenges without resorting to debt review.
  4. Improve to Sell and Maximize Proceeds: If homeowners decide to sell their properties, Real Estate Assist can provide guidance on how to improve and renovate their homes before listing them on the market. This ensures that they get the most value from their sale and can settle their mortgage debts or invest in more affordable properties.
  5. Assistance for Non-Qualifying Prospective Home Buyers: Real Estate Assist offers structured real estate solutions for first-time buyers, those recovering from adverse credit records, and those who want to “try before they fly.” These solutions cater to individuals who might struggle to qualify for a mortgage bond due to rising interest rates or other financial constraints.

By providing tailored services and solutions, Real Estate Assist helps homeowners and prospective property buyers navigate financial challenges and find a sustainable path forward in the South African property market.

Disclaimer: The information provided in this blog is for general informational purposes only and should not be considered legal or property advice. We do not take responsibility for any actions taken based on the information provided in this blog. It is always recommended to seek professional advice for your specific legal or property needs. Contact us (Real Estate Assist) if you seek such advice and we will appoint a professional from our team to be of assistance.

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Please Note: We are unable to provide assistance if you do not own a property. Real Estate Assist specializes in helping property owners who are experiencing challenges with their mortgage payments. If you own a property and require support with debt consolidation without going through the debt review process, our team is here to help you explore options to unlock the equity in your home for necessary family matters.

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