Interest Rate Hikes: How bad is it & how long will it last?

With interest rates steadily climbing in South Africa since late 2021, property owners are understandably concerned, but it's not all doom and gloom.

With a hike of 25 basis points in January, and another increase of 50 basis points in total expected by the end of the year, experts believe we may only start seeing reductions towards the close of 2024.

And that's if the hikes have the desired effect in curbing inflation.

But while the increases are causing homeowners to feel the pinch, it's not necessarily as bad as it seems on the face of things, with experts moving to quell fears and some inaccurate popular opinions.

Firstly, experts believe that we are near the peak of the rate-hike cycle, and that any additional increases are not likely to be large, meaning homeowners can breathe a little easier.

"It would be a welcome reprieve," says The Agency's, Kyle Leigh.

"A slowing of the interest rate hike cycle would provide more stability and less uncertainty for homeowners, and both buyers and sellers."

But while that is positive news, how do homeowners ensure they stay ahead of the hikes? What measures can be put in place to ride out the current cycle?

First and foremost, stay informed, and deal with an expert in the industry, advises Leigh.

"At The Agency, we understand the cyclical nature of interest rate hikes and their potential impact on both buyers and sellers. We strive to navigate these changes with precision and offer our clients the best advice possible, ensuring they make informed decisions and even capitalise on the opportunities they present."

Leigh adds that there are several exaggerated takes on the hikes, like property prices being in freefall, and how the rise in rates is making properties in Cape Town unaffordable. Both, according to the numbers, are not true.

"If you look at the Lightstone statistics, property prices in the Western Cape are actually quite stable," he says, pointing out that other provinces have higher inflation numbers linked to property.

"Properties on the Atlantic Seaboard and in the Southern Suburbs are still seeing good numbers in terms of sales and I am certainly still optimistic."

Leigh adds that while the current series of hikes is certainly hitting homeowners in the pocket, it is nothing new. But after a lowering of the interest rate during the COVID-19 pandemic, followed by a return to pre-pandemic levels, along with a series of additional hikes, it may seem worse than it actually is.

Homeowners who became used to a lower payment are now dealing with larger monthly installments and are having to re-adjust their budgets accordingly.

Leigh is still confident that property is a sound investment and will continue to be so in the future and advises homeowners to ride out the current cycle.

"Property is still one of the best (and most consistent) creators of wealth, still a strong investment for your portfolio. Interest rate hikes have always worked in cycles, and if you can push through it, view it as a long-term plan, investors will come out the other side in a better position."