Real Estate News - Major banks announce hike in prime lending rate

The repo rate has been increased by 50 basis points

All four major banks have announced a 50 basis point increase in their prime lending rate and the mortgage rate to 13.5%. Absa and Standard Bank will raise their rates from tomorrow, while Nedbank and First National will raise their rates from Monday.

Earlier, the South African Reserve Bank announced that it would raise its key repo rate to 10% to tame rising inflation and high consumer spending. Reckless consumer spending, accelerating food and fuel prices, combined with strong demand for consumer credit, are believed to be the cause of the interest rate hike. Above-inflation wage adjustments also contributed to the Reserve Bank raising its key repo rate. The rate comes into effect tomorrow.

This is certain to hit consumers hard -- making it more expensive to borrow and more difficult to service debt already incurred. It is the sixth lending rate hike since June last year. That brings the total to 300 basis points since the beginning of the upward cycle. Inflationary risks remain stubbornly high. Today the Reserve Bank warned the upward pressure on CPIX, which measures the rate at which consumer prices increase, will only begin to ease towards mid-2008.

Bad news for property market
Consumers will now pay back more on their loans, credit cards and home bonds. A R100 000 home bond will cost about R38 more every month. However, the cumulative impact since June last year is much higher, and the pressure on consumers is already showing. Home owners are in arrears to the tune of R6.8 billion -- bad news for the real estate market.

Today's hike comes in the midst of current market turbulence, which saw the rand losing 9% of its value against the US dollar since it touched an 11-month high in July. But the Reserve Bank says its sole focus is reigning in inflation.

SA consumers to fork out more for houses, cars

Gume says the hike will lead to more repossessions

South Africans will have to dig deeper into their pockets to pay for their houses and cars. ABSA and Standard Bank have been the first to announce that they will raise their prime lending rate to 13.5% from tomorrow.

This comes after the South African Reserve Bank announced that it would raise its key repo rate by 50 basis points to 10% to tame rising inflation and high consumer spending.

Deputy Reserve Bank governor, Xolile Guma, has cited continued pressure on the inflation target as the reason for hiking the rate. He says the sad reality is this will lead to more insolvencies and repossessions.

Pressure on property market
Property companies say the 50 basis points rate hike could put "some additional pressure" on the housing market. Chief executive of Jawitz Properties, Herschel Jawitz, says the combination of the National Credit Act, inflation and this increase may start to put some additional pressure on the market, as disposable income comes under more pressure.

He says the recovery of the rental market, which has been soft for some time, is a "sure sign" of the effects of high property prices and rising interest rates. Rental prices are also expected to increase as investors will be paying more on their bonds. – Additional reporting by Sapa

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