Written by: Yogashen Pillay,
Experts have urged consumers to prioritise paying off their debt and avoid spending on luxuries as living costs continue to rise.
This comes after the latest interest rate hike of 75 basis points by the South African Reserve Bank’s Monetary Policy Committee (MPC) last Thursday.
The interest rate hike is the third consecutive increase since March.
Property specialists warned that saving and cutting other costs were crucial as the hike would result in higher bond repayments.
For rental properties, Jonathan Kohler, CEO of Lansdowne Property Group, said that increased rate hikes coupled with high inflation, the rand depreciating significantly against the dollar, and the soaring costs of utilities were going to affect the affordability for both rental property owners as well as tenants.
“To counter this and future interest rate hikes, we suggest people look at ways to reduce their expenses, like car and household insurance.”
Tony Clarke, managing director of the Rawson Property Group, said that now was the time to start putting every spare cent into your bond.
”Cut back on unnecessary expenses, avoid expensive short-term debt, and focus on chipping away at the capital amount of your home loan. The more you manage to do this, the less interest you’ll accrue on your loan over time. That can make very real difference to the overall cost and security of your investment if interest rates continue to climb.”
Abigail Moyo, a spokesperson for trade union UASA, said it was deeply concerned about the affordability crisis that was about to hit its members and other South Africans as the interest rate spirals higher.
“On Wednesday, Stats SA announced that the Consumer Price Index hit the highest mark in 13 years, and now the Reserve Bank’s monetary policy committee (MPC) announced the biggest repo rate hike of 75 basis points in 20 years. This rate hike brings the repo rate to 5.5% and the prime rate to 9%.
“The repo rate is now 200 basis points higher than in November last year.”
Moyo added that South Africans were facing fuel, food, basic services and goods price increases every month.
“UASA encourages its members and fellow South Africans with home and other loans to keep their heads up and their pockets tight. With the constantly growing living costs, disposable income is shrinking. Keeping a tight budget and living within our means is essential.”
Professor Irrshad Kaseeram of the University of Zululand’s Economics Department said that we were facing tough economic times, and it was not known how long it would last.
“The interest rate hike is going to severely impact both the middle class and lower middle-class workers, The lower middle class tend to rely on borrowing from micro-lenders and end up paying up a lot, and this will be exacerbated by the latest interest rate increase. The middle class tend to rely on maxing out credit cards and are going to find themselves paying much more because of the latest interest rate hike.”
Kaseeram added that consumers need to tighten their belts during these tough economic times,
“To keep up with escalating costs consumers need to refrain from excessive borrowing and focus on freeing their existing debt as tough times lie ahead.”
He added that consumers needed to be circumspect about big purchases, such as buying a car.
” Consumers need to conduct their own credit check to determine if they are able to afford paying a six-year car finance and if they are not able to, it might be best to stick with the same car. A crucial thing that consumers need to focus on is paying off their existing home loans.”
Neil Roets, CEO of Debt Rescue, said that the interest rate increase would have a massive impact on consumers.
“If a consumer has a bond of R2m, they would find themselves paying R1000 more every month, which is a major increase.
“Now more than ever, it is necessary for the consumer to have a written budget and stick to it. Luxuries should be cut out as much as possible.”