The South African Reserve Bank has increased the repo-rate by 25 basis points to 10.75%, affecting home loans and vehicle finance. This move is expected to increase the cost of living for households already struggling with rising fuel and living costs. According to calculations, a R1.5 million home loan will cost about R253 more per month, while repayments on a R500,000 vehicle will rise by about R64.
The decision to hike interest rates was announced by SARB Governor Lesetja Kganyago, who stated that headline inflation was projected to hit 5% before slowing to 3% at the end of 2027. This projection comes as fuel prices continue to rise. Earlier, Stats SA announced that South Africa's inflation rate had edged higher to 4.4% in August, from 4.3% in July.
FNB Chief Economist Mamello Matikinca-Ngwenya supported the repo-rate hike, stating that it reflects the need to reinforce policy credibility amid intensified external inflation risks and inflation expectations above the SARB's 3% objective. However, not everyone agrees with the decision, with Samuel Seeff, chairman of the Seeff Property Group, feeling that it will inflict real financial pain on households and businesses.
The interest rate hike will have varying effects on car and home loan payments. For example, on a R250,000 vehicle loan, the payment will increase by R32 per month, while those with an R800,000 home loan at prime over 20 years can expect their monthly instalment to increase by around R135. These changes will add to the interest bill over the loan duration.
Despite the interest rate hike, FNB CEO Lytania Johnson noted that it does not necessarily signal the start of a prolonged tightening cycle. She cited subdued economic growth, elevated unemployment, and consumers feeling the impact of higher living costs as factors to consider. Dr Andrew Golding, chief executive of the Pam Golding Property Group, added that banks continue to support housing-market activity through competitive lending and products designed to reduce upfront financial barriers to homeownership.
The repo-rate hike may lead to increased demand for cost-inclusive loans, particularly from first-time buyers. According to ooba Home Loans, the proportion of first-time buyer applications for cost-inclusive loans increased more than fivefold, from around 3% in 2021 to nearly 16% in early 2026. This trend indicates a shift towards more affordable financing options for prospective homeowners.
The effects of the repo-rate hike will be closely monitored, as households and businesses adjust to the new financial landscape. Key considerations include the potential impact on home loan defaults, affordability challenges for first-time buyers, and overall economic activity.
Key points
- The repo-rate hike will increase monthly repayments for homeowners and motorists.
- The interest rate hike is expected to impact households already struggling with rising fuel and living costs.
- The repo-rate hike may lead to increased demand for cost-inclusive loans, particularly from first-time buyers.
