Utility Price Hikes to Affect Homeowners

February 26 - The Chief Executive Officer of the ERA South Africa Property Group, Gerhard Kotze said this week that the predicted hike in electricity and water prices will undoubtedly affect home loan rates in the medium term.

The National Electricity Regulator approved a 24.8% hike in costs for Eskom, and Kotze said that this would most probably cause inflation figures to rise.

"This announcement will undoubtedly be inflationary," he said. "Clearly the so called 'soft' interest rate cycle is about to change and existing homeowners should plan their finances and look at their options accordingly.

So what can homeowners do to prepare themselves for higher home loan rates in the medium term?

One obvious option is to request to switch to fixed home loan rates. While the rate is higher than the current rate, the peace of mind that comes with knowing what they are going to be paying in the long run is worth the expense for many homeowners.

"Homeowners who opt for this route, where their bank permits it, would therefore take the initial 'pain' of higher monthly payments upfront, but benefit later when interest rates 'catch up' and then exceed their fixed rates," said Kotze.

There is no doubt that the electricity price hike approval is only the beginning of the rise in costs of other utilities such as water. As such, South Africans are advised to build these extra costs into their budgets.

"I agree with FNB economist John Loos that homebuyers should build higher interest rates into their planning, allowing for further cost increases as water and other utility providers follow Eskom's lead in demanding price hikes to fund infrastructure maintenance and roll out costs," said Kotze.

Related Insurance Articles:
* Housing Backlog Addressed
* Struggling Mortgage Payers Get Answers
* New Home Buyers Find Property Purchase Easier
* Bidders Vie for Camps Bay Property

2/26/2010 11:02:40 AM