Reserve Bank Raises Repo Rate by 25 Basis Points
The reserve bank raises repo rate by 25 basis points, find more information about what this means to you.
With Jingle Bells just around the corner, over-indebted South Africans may be hearing alarm bells first, as the South African Reserve Bank’s (SARB) Monetary Policy Committee (MPC) recently hiked interest rates by 25 basis points. This takes the prime-lending rate to 9.75%.
SARB governor Lesetja Kganyago announced that the repo rate, which is the rate at which the SARB lends money to commercial banks, has increased to 6.25% ahead of the festive season.
With further rate increases expected during the course of 2016, it is time for property owners, as well as potential property buyers, to tighten the reins on their spending habits and start building a savings reserve.
Reasons for the hike
With the current economic conditions, the decision to raise the rates has been on the cards for quite some time now. The increasing strengthening of the US Dollar over the past few weeks left the Reserve Bank with little choice.
Kganyago added that one of the main reasons for the increase is the worsening drought conditions and its likely impact on food prices. The possibility of additional electricity tariff adjustments was also an important factor.
Economists have warned that consumers who are accustomed to living off credit will have to start limiting their reliance on it. During situations such as this, many consumers make use of unsecured payday loans in order to get through each month. These loans end up creating even more debt in the long run.
What does this mean for homeowners and potential property buyers?
While this 25-basis point repo rate increase is not massive in itself, it is important to remember that this is the third increase in little over a year. When you factor in the 8-11% increase in transfer fees, immense strain is put on the housing market.
Property prices are still expected to rise during the next few years, driven largely by stock shortage. Property prices will not rise at the 2013/2014 rates, but rather at a year-on-year increase, slowing to around the rate of inflation from the 8% to 10% we’ve seen in recent years.
The rate hike will see an increase to bond repayment. A home loan of R1 million will see a monthly repayment increase of approximately R172.
With further rate increases expected next year, it is important for homeowners and potential property buyers to evaluate their spending habits, working hard to rid themselves of as much debt as possible. Consumers need to place themselves in the most optimum financial position possible before the next Monetary Committee meeting.
Consumers with high debt levels will be adversely impacted by a hiking cycle, while those who have decent savings in place will benefit greatly.
Surviving the rate increase
Financial planning is key. By managing and updating your budget regularly, you can keep a tight grip on your finances, hopefully being able to put some savings away each month. This process is also a great way to teach your family about financial management.
With the festive season around the corner, it is important to assess your spending habits. Be vigilant of price changes, taking them into consideration when doing your budgets and projections for the future.
Thanks to the fact that you buy directly from the developer, Bardale Village is proud to provide our buyers with the best possible interest rates on your bond.
For more information, be sure to contact us here.