As was generally expected, the South African Reserve Bank’s Monetary Policy Committee (MPC) has left interest rates unchanged at their second meeting of the year. As a result, banks will keep the prime interest rate at a level of 9%.
What this means for consumers is that we can’t expect further relief in terms of interest-rate cuts; on the contrary, interest rates are expected to go up as inflation increases during the course of the year. The message is to live within our means and watch spending — not what we’d like to hear, but sound advice nevertheless.
Gavin Opperman, CEO of Absa Retail Banking, says that prospective home owners need to make affordability their key concern. If interest rates increase by another 50 basis points towards the end of the year, as is expected, this will mean a 6% increase in your mortgage repayments. If interest rates increase by 100 basis points next year, that will increase mortgage repayments by 11%. It’s worth factoring that into your current budget.
“While it’s true that interest rates are at a historical low, first-time buyers entering the market still face affordability issues, due to the higher municipal rates and increased electricity costs, among other costs inherent in the purchase and upkeep of a home,” said Andrew Golding, chief executive of Pam Golding, who said that restricted access to finance is also an issue.
He said that sellers pricing their homes at realistic, market-related prices are reaping the benefits and achieving sales, while investors who have access to finance (or have high liquidity) can still find good buys as property prices have been more or less constant for a couple of years now.
When it comes to motor vehicles, Opperman says that small- to medium-sized segments will account for most sales as affordable, entry-level vehicles appear most appealing to the average buyer.
Opperman predicts that vehicle price affordability will remain stable during the course of the year — good news for the motor-vehicle industry and buyers alike.
Of huge concern, though, are high levels of household indebtedness. “Bank the savings you realise on your vehicle finance instalments,” he advises. He notes, too, that fixed rates will remain a good option given that interest-rates are still at their lowest level in 30 years or so.
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