Debt holders are likely to be sitting on the edge of their seats ahead of the next interest rate announcement which is set to be held on 27 March 2024. The promise of an interest rate cut has been floating around for some time now, but this next announcement might just see the promise being realised.
In January the SARB's Monetary Policy Committee decided to keep the repurchase rate at its current level of 8.25% per year.
READ: First-time homebuyers' fears - how to overcome them
Although hopeful that March might be the month that we see a 0.25% drop, Adrian Goslett, Regional Director and CEO of RE/MAX of Southern Africa, warns consumers not to expect any dramatic rate cutting cycle to begin. “Many economists predict that at best, interest rates will only come down by 1% over the course of the year, which will still leave us at a higher rate than we were pre-Covid.”
Focusing on the positive, Goslett says that even a 0.25% drop in interest rates can go a long way towards relieving some of the financial pressure many households are undoubtedly facing.
However, if we do experience a cut, Goslett’s advice to consumers is to work wisely with any money that is freed up as a result. “If you can afford to keep your repayments where they were before the cut, then I would strongly recommend that you do so, as this will help you to pay off the debt faster and reduce the amount of interest payable over the loan term,” says Goslett.
Want a clear picture of what you can and can't afford? Try Property24's list of affordability calculators and tools here.
Andrea Tucker, Director of MortgageMe previously shared various ways to navigate interest rate hikes and keep your home (article, April 2023)., here is a look back to strategies you can implement to safeguard your home
1. Talk to your bank
Above all, Tucker says it’s best to confront the realities and speak about your concerns around rising bond repayments to your bank as early as possible. "Banks don’t want to repossess properties; this is really their last resort, which can be avoided by homeowners communicating with their bondholder prior to them missing one or multiple monthly instalments. Rather meet and discuss options such as a short-term payment holiday, the repayment of interest only for a period, or a renegotiation or restructuring of the terms of your home loan. Banks will notice if you miss payments – rather be proactive about a difficult repayment situation before you find yourself in the middle of it," adds Tucker.
2. Spring clean your financial cupboard
In order to ensure that you can meet the most essential repayments in your constrained household budget, including your bond, now might be a good time to do a little financial spring cleaning. Review all your debit orders and cancel any services that you rarely use or no longer need or could do without for a period of time. These might include subscriptions to multiple entertainment streaming platforms, the gym or other membership fees, or cell phone contracts. “Also, consider cancelling any high-interest incurring store cards or credit cards, if possible. You will be surprised how much you can shave off your outgoings in this way,” she says.
3. Pay more to save more
Anything you save, if possible, should be diverted into your bond repayments. Adding a little extra each month can make a significant difference and reduce your bond period and/or instalments. By paying more every month, or even whenever you can, you may also be able to release cash amounts through your access bond facility. A good idea is to set up a recurring transfer out of your account on payday into a savings account – and then transfer that across to your bond at month end. If its not there from the beginning of the month, you probably won’t miss it.
4. Buying and selling in a period of high-interest rates
Tucker says for those looking to buy a property, current and future interest rates are a big factor to consider. "You can mitigate the risk of fluctuating rates and repayments by negotiating the best bond deal to suit your budget; a rate below prime is first prize, but you can also look at a fixed mortgage rate, which might benefit your present circumstances. You should, however, consider the impact later on of pegging your rate, but a fixed rate will give you certainty for now."
She notes that putting down a big deposit is always sensible as it reduces the amount homeowners need to repay on a bond and may secure a more favourable lending rate. "Saving now can reap rewards later. Overall, a bigger deposit can help you achieve more financial stability in the long run."
Before selling a property voluntarily, homeowners should weigh up the considerable short-term sale costs, including estate agent and legal fees, and bond cancellation fees that are associated with a sale, against taking as many measures as possible to avoid being compromised into a sale. And if you’re thinking of selling and downscaling to a smaller property, there are costs on the buy side of the equation too.
"We are all tightening our belts and trying to find ways to make less money go further. With a bit of determination and a little sacrifice, keeping your head above the swirling financial waters and keeping your home is achievable," says Tucker.
READ: Buying: How deposits work for first-time buyers
Goslett continues to say that shifting the focus onto what this would mean for the property market, Goslett does not expect that market conditions will be too noticeably impacted even if there is a small interest rate cut in March. “The cut might give some buyers a bit more confidence to proceed with their property purchases, but for the most part, I would expect that affordability will remain a problem and that activity might remain muted in some areas as a result,” he predicts.
While some areas will continue to be hamstrung by the high interest rates, Goslett notes that other areas that attract cash buyers are likely to remain active. “Because interest rates are so high, buyers are relying less on home financing. The semigration trend also means that buyers can sell their homes in one province and use the cash to purchase a new home in another province.”
Although property market conditions are unlikely to be too largely impacted if interest rates are cut by 0.25% at the next meeting, Goslett is still rooting for this outcome, as it will be the first step towards greater growth within the property sector as a whole.
“Even if we see one or two cuts during the year – which will bring some much-needed financial relief – interest rates are likely to remain high for the foreseeable future. My advice for consumers is to plan and prepare themselves for this fact, and to keep in touch with a local RE/MAX agent to stay informed of any good real estate opportunities as and when they arise,” says Goslett.
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