Tables turn for South African homeowners as R1,334 pain looms

Before the outbreak of the Middle East war, South African homeowners were expected to see two interest rate cuts, significantly decreasing their monthly home loan repayments.

However, the US/Israel-Iran conflict has flipped this expectation around, with two interest rate hikes now expected.

This could see South Africans with a R2 million home loan pay up to R1,334 more than they would have if the cuts materialised.

South African homeowners experienced significant relief in 2025, as easing inflation and declining interest rates supported consumer spending.

This, in turn, boosted the country’s economic growth to 1.1%. While still low, this was considered a strong improvement from 2024’s lacklustre 0.6% GDP growth.

The positive economic developments seen in 2025, which also included a record year for the JSE, set South Africa up well to build on that momentum in 2026.

At the start of 2026, South Africa continued to see low inflation, economists were projecting two 25-basis-point interest rate cuts for the year, and economic growth was on a strong trajectory.

However, the Middle East war, which broke out at the end of February, has flipped many of these expectations on their head.

Now, faced with soaring fuel prices and global shipping bottlenecks, South Africa’s inflation rate is expected to accelerate. Experts are pencilling in at least two interest rate hikes, and economic growth projections have dropped.

For example, the Old Mutual Investment Group (OMIG) recently revealed that it has gone from forecasting 75 basis points of cuts to now expecting 50 points worth of hikes for 2026.

If OMIG’s latest projection materialises, the repo rate will shoot back up to 7.25% and the prime rate to 10.75%, back where they were in June 2025.

This will also see South Africans with prime rate-linked home loans pay significantly more towards their monthly repayments, especially compared to what they would have paid if pre-war expectations materialised.

The comparison of home loan repayments based on pre- and post-war interest rate expectations is shown in the table below.

Note that these figures are rough estimates based on a 20-year bond and the prime lending rate.

Wait and see

While many economists have pencilled in interest rate hikes for 2026, many others believe the Reserve Bank should and will take a wait-and-see approach to monetary policy this year.

Faced with highly elevated uncertainty, particularly regarding when the Middle East war will end, central banks worldwide have been urged to remain vigilant but not react rashly.

For example, International Monetary Fund managing director Kristalina Georgieva has advocated for a wait-and-see approach.

She recently encouraged central banks around the world to tailor their responses to incoming data and not rush interest rate changes.

NWU Business School economist Professor Raymond Parsons expects the South African Reserve Bank to heed this advice.

The Reserve Bank’s Monetary Policy Committee (MPC) already started the year out with caution, keeping the country’s interest rates unchanged in January, even before the Middle East war broke out.

The MPC also kept rates unchanged at its March meeting, with Governor Lesetja Kganyago saying the coming months will be crucial for assessing the war’s longer-term inflation consequences.

“The ongoing Middle East conflict is a clear instance of a supply shock, which raises prices while weakening demand,” he said at the MPC’s March meeting. 

“The standard response to a supply shock is to look through first-round effects, which are unavoidable and cannot be stopped by interest rate changes.”

“At the same time, central banks should be alert to second-round effects, where an initial shock triggers broad price increases.”

However, Kganyago also warned that it is difficult to assess second-round effects in time, as waiting for clear evidence risks leaving the policy response too late. 

“We therefore rely on forecasts, as well as indicators like wages and inflation expectations, to judge if there is a broader build-up of inflation pressure,” he explained.

Based on these factors, the MPC believes inflation risks are skewed to the upside. In a scenario where the impact of the war pushes inflation above 4%, interest rate hikes become highly likely.