There are two possible interest rate cuts on the cards for 2024, according to Standard Bank but consumers will still face pressure from home servicing cost such as rates and taxes.
The bank noted that South Africa’s interest rate cycle has been largely impacted by the pandemic, local energy issues and volatile food and oil prices.
Standard Bank said that South African consumers with a R1 million bond on their homes, would have seen their interest rate repayments increase by around R4,000 from 2021 when the interest rate started moving upward.
The bank stated that this is a growth of over 40% in instalments since November 2021.
Thabani Ndwandwe, chief risk officer at Standard Bank SA said that consumers should continue to tighten their belt for a few more months even after the rate cut.
“Despite rates predicted to edge lower, benefits to customers might take a bit longer to filter through. Since November 2021, the price of electricity has increased by an average of almost 30%, or 23% above inflation. This added more pressure on households struggling to balance household finances,” Ndwandwe explained.
She said that the prime lending rate has risen 475 basis points since November 2021 as the economy began recovering from Covid-19.
When the interest rate cut does happen, the bank argued that the relief will go a long way in softening the blow caused by the increase in monthly property servicing costs like rates and taxes.
“In cities such as Johannesburg, electricity tariffs increased by 12.7% in July, while property rates increased by 3.8%. Tariffs for refuse collection, water and sanitation have also increased at a pace that has outstripped inflation,” the bank added.
Over and above these increases, the City of Johannesburg’s prepaid electricity customers will get an additional R200 fixed charge every month, according to Standard Bank.
It should also be noted that SA’s property sector has also been impacted by the rising cost of living.
According to Ooba Home Loans, the number of new home loan applications in the first quarter of 2024 was 9% lower than in the first quarter of 2023, and 25% behind the same period in 2022.
“A reduction in interest rate should lead to a recovery home loans application volumes, which had already started rowing by 8% since the last quarter of 2023, however, this growth will likely be muted by municipal tariff hikes,” Ndwandwe said.
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