R1,847 pain coming for South African homeowners

Prevailing uncertainty surrounding the Middle East conflict and its potential impact on inflation could see the South African Reserve Bank (SARB) hike interest rates at its July meeting.

A 25 basis point hike in July will bring the SARB’s policy rate (the repo rate) up to 7.25%, and the prime lending rate to 10.75%.

This means some South African homeowners will be paying R1,800 more per month in home loan repayments than at the start of this year.

South Africa’s interest rate trajectory started 2026 off on a hopeful note, with economists pricing in two interest rate cuts for the year.

Over the course of 2025, the Reserve Bank cut interest rates four times, bringing the repo rate down to 6.75% and the prime lending rate to 10.25%. 

This was the lowest the repo and prime lending rates had been since 2022, and they were expected to decline further in 2026. 

South Africa had just adopted a lower inflation target, and CPI inflation hit a low of 3.50% in January, then fell even lower to 3% in February.

However, at the end of February, the US/Israel war against Iran broke out, derailing many of the projections made at the start of the year.

The Middle East conflict sent oil prices surging, with fears mounting about the effect this would have on inflation worldwide.

In South Africa, fuel prices soared, with diesel prices in particular hitting an all-time high, adding to inflation concerns.

The Reserve Bank responded to these concerns at its May 2026 meeting, when the Monetary Policy Committee voted to hike interest rates by 25 basis points.

In May, CPI inflation hit 4.50%, and the Reserve Bank’s hike raised the repo rate to 7% and the prime lending rate to 10.5%.

Since then, developments in the Middle East have shifted towards finding a resolution, though peace negotiations remain fragile and uncertain.

With the Monetary Policy Committee set to meet again on 23 July, some economists are pricing in another 25-basis-point interest rate hike for South Africa.

Implications for South African homeowners

Bank of America recently predicted that the Reserve Bank will hike interest rates by 25 basis points at its July meeting.

The American banking giant said the Monetary Policy Committee’s decision will be a “close call” between hiking rates or holding them where they are.

While the bank acknowledged that oil prices had come down from their highest point during the tensest moments of the Middle East conflict, they have yet to return to pre-war levels.

However, inflation expectations remain high, with CPI inflation now expected to average 4.4% in the second quarter of 2026.

This is well above the Reserve Bank’s new inflation target of 3%, which Governor Lesetja Kganyago has committed to achieving as soon as possible.

Therefore, Bank of America said another interest rate hike for South Africa seems likely, with the bank pricing in a 25-basis-point increase in July.

This will see the repo rate increase to 7.25% and the prime lending rate rise to 10.75%, a 50 basis point increase compared to the start of 2026.

For homeowners with prime-linked bonds, another rate hike will significantly increase their monthly repayments, particularly compared to the start of 2026.

Daily Investor compared home loan repayments based on a prime lending rate of 10.25%, where it stood in January, and 10.75%.

The results of this comparison are shown in the table below, based on a standard 20-year bond and the prime lending rate.