The South African Reserve Bank has raised the repo rate by 25 basis points to 7%, pushing the prime lending rate to 10.5% in the first interest rate increase since May 2023.

The Monetary Policy Committee’s decision comes as consumer price inflation climbed to 4% in April, up from 3.1% in March, driven by rising fuel prices, municipal tariff hikes and increased electricity costs.

Rhys Dyer, CEO of the ooba Group, said the increase places additional pressure on already strained consumers, though the move was largely anticipated given recent inflationary trends.

“The increase places additional pressure on already strained consumers,” Dyer said. “While the move was largely anticipated given rising fuel prices, municipal tariff hikes and increased electricity costs, it is disappointing given the already fragile state of the consumer.”

South Africa’s interest rate outlook remains uncertain as global geopolitical tensions persist and oil prices remain elevated. The fragile ceasefire between the US and Iran has done little to calm global markets, with ongoing shipping disruptions continuing to place upward pressure on fuel costs worldwide.

Locally, this is likely to translate into further petrol price increases, adding to inflationary concerns and squeezing household budgets.

Deposit amounts decline

Declining deposit amounts underscore the mounting financial pressures faced by South African households. From January to April, deposits averaged 8.3% of the purchase price for first-time homebuyers and 12.4% overall, down from 9.9% and 14.9% respectively a year earlier.

Actual deposit values declined by 14.8% for first-time homebuyers and 16.8% overall.

The challenges come against the backdrop of a weakening labour market, with unemployment rising to 32.7% according to Statistics South Africa. The 15 to 34 age bracket, one of the hardest hit by unemployment, represents a significant portion of future first-time homebuyers.

Despite these challenges, Dyer believes the aspiration of homeownership remains strong among many South Africans, particularly younger homebuyers entering the market for the first time.

“As employment prospects improve over time, many of these individuals will likely look towards homeownership, making financial wellness education and awareness of government support initiatives such as the First Home Finance subsidy increasingly important,” he said.

Banks offer support

Financial institutions are increasingly offering more generous finance packages, including zero-deposit bonds and cost-inclusive loans above 100% and up to 110%.

Data shows that repeat homebuyers are increasingly opting for zero-deposit loans, whilst first-time homebuyers are also making greater use of cost-inclusive loans.

Dyer noted that whilst affordability pressures are likely to intensify following the latest rate increase, property ownership continues to offer meaningful long-term value.

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“Even in a constrained economy, homeownership remains one of the most effective ways for consumers to build long-term wealth and financial security,” he said. “The stability in house price growth, combined with improving access to finance, continues to generate meaningful opportunities for homebuyers.”

Looking ahead to the second half of the year, Dyer said the SARB will continue to closely monitor geopolitical issues and the ongoing impact on local inflation.

“Whilst global uncertainty, particularly around the Middle East crisis, is likely to persist, the resilience shown by the local property market, particularly amongst first-time homebuyers, remains encouraging,” he concluded.

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