Increase in interest rate to hit consumers

2014-07-18 00:00

THE Reserve Bank’s one-quarter basis point increase in the prime interest rate will put more pressure on cash strapped consumers.

Reserve Bank governor Gill Marcus yesterday announced the repo rate would be raised by 25 basis points to 5,75%, in response to inflation breaking through the three to six percent barrier.

“Consumers struggling with debt need to prepare for greater challenges as the interest rate hike will have a severe impact on their financial situation,” said Ian Wason, chief executive officer of DebtBusters.

“Although not unexpected, the increase … is unfortunate news for homeowners, as well as the growing number of first-time buyers,” said Andrew Golding, chief executive of Pam Golding Property.

For many consumers, the bond repayment is their biggest monthly expense. A home owner with a bond of R890 000 over a 20-year repayment period would have had to pay R284 more per month after the January interest rate hike. The latest increase means they now need to find an additional R177 per month.

“Ultimately, the increase will most be felt by those who are feeling the pressure of rising utilities costs and erosion in disposable income,” said Golding.

“Considering that the housing market is finally on the mend, this is just too soon and will do little to instil investor confidence or encourage economic growth,” said Seeff Properties chairperson Samuel Seeff.

As an indication of the trouble that South Africa’s massive army of debt-laden consumers are in, the country’s biggest debt counselling firm said its clients required 102% of net income to service their debt obligations in the first quarter.

“The 0,5% repo rate increase in January will be starting to effect home loan defaults,” said Wason.

Golding said he hoped the interest rate would remain stable in the months ahead, as the economy ­required growth stimulus.

The interest rate increase will also hurt car sales and the auto industry.

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