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Understanding interest rates; more than a thumb-suck

1 November 2023 | Insights Team

The South African Reserve Bank’s Monetary Policy Committee (MPC) meets bi-monthly to assess the nation’s economic conditions and adjust interest rates accordingly. While these decisions are scrutinised by economists and financial advisors for their impact on borrowing costs, including home loans, there are those who trade in property who often offer opinions about when and by how much repo rates are likely to escalate or come down – a crystal ball prediction at best. Grant Smee, CEO of online Proptech realtor Leadhome cautions consumers only to rely on qualified, financial professionals for interest rate predictions.

South Africans are well-acquainted with an ever-changing economic landscape, making those with home loans especially vulnerable to shifts in interest rates. “Consulting various sources for advice may be tempting, and many property practitioners enjoy the airtime these predictions provide. However, your go-to source for interest rate predictions or other economic factors influencing the market should really be experts in economics,” cautions Smee. It’s important to note that policymakers at the South African Reserve Bank consider a multitude of economic factors; including inflation, employment, consumer spending, fiscal policy and financial stability, when adjusting the repo rate.

The risk of misinformation

Relying solely on property agents for financial predictions can put homeowners at risk. “These agents are experts in property transactions, not economic forecasting. It’s irresponsible for them to make off-the-cuff economic predictions,” Smee adds. When applying for a loan, consumers should weigh both best-case and worst-case scenarios when contemplating the financial ramifications of interest rate changes on their home loan repayments. Even a minor fluctuation in the interest rate, as set by the South African Reserve Bank, can significantly affect your monthly budget. The repo rate has seen significant fluctuations over the years, ranging from highs of above 20% in the early 1990s to lows of around 3.5% in recent years. The SARB kept its key repo rate steady at a 14-year high of 8.25% during its September 2023 meeting, commenting that the fight against inflation was not over.

The real impact of interest rate changes

To illustrate, a 0.5% interest rate hike could increase the monthly repayment on a R2 million bond by approximately R630. “Homeowners can’t afford to act on impulsive advice from those property agents who are more interested in closing a sale than in the buyer’s long-term financial health,” says Smee. Stressing that economic forecasting is a field best left to those who understand its complexities and that consumers must exercise caution when seeking financial advice. “Do your homework,” he adds. For accurate and reliable information on interest rates, consult professionals in the field.

Insights Team

We're the "thinking arm" of Leadhome, combining expertise in data analysis, modelling, sociology, geography, and philosophy to interrogate current trends in the South African residential property market. Proudly contemplative since 2015.

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