Samuel Seeff, chairman of Seeff Properties, has expressed disappointment at the decision of the Monetary Policy Committee of the Reserve Bank to hike the repo rate by 25 basis points to 6% (base home loan rate from 9.25% to 9.5%).
"This is out of step with the economy and bad news for consumers, home owners and buyers. Holding this off until later in the year would have been preferred in view of the mounting challenges that consumers and home owners face," he says.
For most households, their home loan is their biggest monthly expense and this interest rate hike will further dent the pockets of mortgage loan holders, many of whom are already struggling to balance their household budgets. It seems punitive too that hard working consumers should have to bear the brunt of economic setbacks caused by factors beyond their control such as the Eskom crisis.
According to the latest FNB Property Barometer, household debt-to-disposable income levels are now at around 78.4%, down from 83% in early 2009 while credit growth remains muted, at just above the 3% growth mark year-on-year.
On top of extraordinary electricity hikes, transport cost increases, higher personal income tax for top earners and a 20%-40% hike in the transfer duty at the R2.25m end of the housing market, home loans will now also be more costly.
A home owner with a housing bond of R995,000 and a current monthly repayment of R9,113 will see his/her repayment increase to R9,275 and will thus need to find an extra R162 out of an already embattled household budget. For some, this is the equivalent of a week's transport costs.
Aside from the effect on existing home owners, the interest rate hike will have an inevitable slowing effect on the demand for property and sales volumes. While it will be an affordability issue for buyers, sellers are now seeing staying put and remodelling or renovating as a better alternative.
"This is a trend that we are seeing in many areas right now, especially in the R2.25m plus end of the market where, with the 20%-40% transfer duty hike, sellers are finding the high transaction costs as just too punitive. This, despite the wide scale stock shortages and good selling conditions," says Seeff.
