Smack in the wallet

20 November 2015 - 02:33 By Graeme Hosken

South Africans will have to dig deep to keep afloat after yesterday's interest rate hike of 25 basis points to 6.25%. The decision by the Reserve Bank to raise the rate at which it lends money to commercial banks is going to hurt your pocket. It means the prime lending rate is now 9.75%.Here's where it will hurt most.HOUSINGDebt Counselling Association of SA president Paul Slot says consumers with home loans will feel the pinch immediately.Repayments on bonds of R500000, R1-million and R2-million will increase by R82.50, R165 and R330 a month respectively. This, Slot said, meant money would have to be cut from elsewhere."But most people don't have the luxury of cutting back on expenditure. If you have to cut back, where do you cut? You have to pay water and electricity, which is going up with school fees and food."John Loos, household and property-sector strategist at FNB Home Loans, said the increase was the first of many.DEBTThere are 23.37million South Africans in debt.The average consumer has four credit agreements.About 10.5million debtors are in arrears with their repayments."This is just going to get worse," Slot said, adding that yesterday's increase was going to "break the dam wall" and middle-income earners were most at risk.Slot said consumers in arrears already spend over 60% of their take-home pay on servicing their debt. But, despite this, 5.2million debit orders go unpaid every month.Ian Watson, CEO of Debt Busters, said consumers who "continue to fund their lifestyles on credit are on the slippery slope to financial disaster"."We are already seeing how the heavy reliance on credit is affecting consumers, with [some of our] clients requiring 106% of their net income to service their debt," he said.PENSIONERSEconomist Mike Schussler said that, although people working in the formal sector would probably be able to absorb the increase, it would severely affect those in the informal sector and pensioners."Overall, people will be paying more with less money to spend. People over 65 will struggle to get loans because lenders will be concerned about their ability to repay."Their repayments will be beyond the 25 basis point increase we have seen and will more likely be about 50 or 75 basis points, which will make repayments incredibly difficult."MIDDLE-INCOME EARNERSSchussler said the interest rate hike came at a time when pay increases in the middle income group were slowing down."This group is under increasing pressure, especially with increases in electricity and food prices."THE POORThe poor would also be hit hard."Many have loans from microlenders, whose repayment rates are steep. These people are under pressure and the increase will make it hard for them to survive."FOODMervyn Abrahams, a director of the Pietermaritzburg Agency for Community Social Action, said many low-income households would not be able to make it through the month."They struggle to secure the goods and services needed to live at a level of basic dignity."He said households prioritise payment for transport, education, electricity, burial insurance and debt."Food is prioritised last because it's one of the few expenses households can control."Because food is last in line, the food budget is low and households underspend on food by 55.6%, with food running out by the second or third week of the month."..

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