The Reserve Bank’s decision to raise the interest rates for the first time since July 2012, says Tony Clarke, Managing Director of the Rawson Property Group has come as a shock and bodes negatively for the property market as well as for bond mortgagors.
“In my opinion,” says Clarke, “it is the Reserve Bank’s obligation to bring about economic recovery and to ensure that this recovery is here to stay – and this should happen before increasing interest rates. With this new announcement, growth projections will have to be assessed to below the current 2% mark. ”
The decision by Turkey to raise their interest rates to protect their currency, said Clarke, was an important sentiment for emerging economies. This benefitted the rand, which strengthened to below R11.00 against the dollar resulting in all major indices on the JSE being higher shortly after midday on Wednesday past.
“I believe it is premature to push rates up now and see no need for this hike at this time,” says Clarke, “as there is no threat of rising house prices creating a bubble and inflation is still at a manageable level.”
So how will this affect the property market?
The hike, said Clarke, will depress house price growth to an extent where it will fall below inflation, seeing house prices growing at a negative figure in real terms. It will also break the psychological barriers that have led people to take comfort in the fact that interest rates will remain low for the time being. This new and unexpected revelation may now cause some panic and lead people to believe that this is the first of more rises to come.
“When the interest rates started going down,” says Clarke, “myself and a number of other spokespeople at the Rawson Property Group made it our aim to advise property owners to keep with their higher premium payments and not fall into the trap of reducing these to lower interest levels. Those who followed this advice will not be too worried by this hike – but those who ignored this may find themselves in a bind that could have been avoided.”
The rise in the interest rate, adds Clarke, will also affect all of those who have recently bought homes as these will now have to be reassessed to make sure that the borrower is able to afford the new purchase. In addition to this, mortgage availability will come under more pressure as borrowing costs will now also go up which will come as a hard hit to an economy that has struggled to recover from the worst recession in modern history.
