NERSA reaction: Homeowners should consider fixed rates

The National Electricity Regulator’s announcement of approval for a 24.8% electricity price hike for Eskom will mean higher home loan rates in the medium term and homeowners should explore all their options to soften the blow, says the CEO of the ERA South Africa property group, Gerhard Kotzé.

“The announcement will undoubtedly be inflationary. Clearly the so-called ‘soft’ interest rate cycle is about to change and existing homeowners should plan their finances and look at their options accordingly,” he says.

“Moreover, I agree with FNB economist John Loos that homebuyers should build higher interest rates into their planning, allowing for further cost increases as water and other utility providers follow Eskom’s lead in demanding price hikes to fund infrastructure maintenance and roll-out costs.

“One option available to existing homeowners in good standing with their lenders is to fix their home loan rates. Typically this would be at a slightly higher rate than the current rate, with the borrower effectively paying a premium for the privilege of a known cost going forward.

“Homeowners who opt for this route, where their bank permits it, would therefore take the initial ‘pain’ of higher monthly payments upfront, but benefit later when interest rates ‘catch up’ and then exceed their fixed rate.”

The basic message, says Kotzé, is that the days of relatively cheap energy for homeowners are over. The effects will undoubtedly be seen in different ways, including a shift in home demand down the price ladder, an even stronger swing to smaller homes, energy saving provisions in new residential developments and retrofitting en masse of existing homes with energy saving devices.

“And it’s unfortunate that the tariff hike announcement was not accompanied by clarity on Eskom’s electricity supply connection policy in respect of new residential developments. Given the lead times for such developments and uncertainty surrounding electricity connections this aspect requires urgent attention.

“Numerous residential developments were put on hold or mothballed because of the uncertainty in this respect and while that may have suited circumstances last year when consumer demand was low, the picture could change drastically as the market continues to recover and even lead to a shortage of housing stock.”

Article by: www.era.co.za