High interest rates are causing many South Africans to lose their homes, while the South African Reserve Bank (SARB) remains reluctant to lower the repo rate, says Renier Kriek, the managing director of Sentinel Homes.
“The property industry is seeing growth among those in the top 30% of income earners, although there is low demand in this segment because banks are flooding that market with relatively easy money to offset the growing rate of home loan defaults.”
He said that despite low demand, the property industry is seeing growth among those in the top 30% of income earners, largely due to banks offering relatively easy financing to counteract rising home loan defaults.
Previously, the National Credit Regulator reported that 92% to 93% of home loans were up to date, implying a default rate of 7% to 8%.
However, recent data from the second quarter of 2024 shows that only 87.8% of home loans are current, indicating an increase in defaults to 12.2%. This represents a more than 50% rise in missed payments.
The high interest rates are a significant factor behind the loss of homes and properties. These rates not only increase the financial burden on homeowners but also have broader economic implications. The cautious monetary policy, while intended to be protective, is proving costly for the economy.
South Africa faces external challenges such as global conflicts and economic disruptions affecting trade, particularly in commodities. Additionally, there is uncertainty about the impact of the incoming Trump administration on African inflation.
Given the current low inflation, there is a brief opportunity to reduce interest rates, which could stimulate economic growth, boost capital investment, and create jobs, alleviating high unemployment and economic difficulties, said Kriek.
The Monetary Policy Committee (MPC) has the flexibility to make extraordinary interest rate adjustments, as seen during the Covid-19 pandemic. They can lower rates now and raise them again if inflationary pressures arise.
Kriek said it's time for the South African Reserve Bank (SARB) to reconsider its conservative approach to monetary policy. Continuing with high interest rates when the immediate threat has passed is unnecessary and counterproductive.
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