South African homeowners can breathe a sigh of relief as the SA Reserve Bank (SARB) has announced an interest rate cut which can have a significant impact on monthly home loan repayments.
The SARB Monetary Policy Committee (MPC) has cut the repo rate by 25 basis points from 8.25% to 8%. Prime lending rate in the country dropped from 11.75% to 11.50%.
The drop in the repo rate comes after no change in interest rates for seven consecutive meetings.
This cautious approach brings a small sigh of relief to cash-strapped households, who have struggled the rising interest rates since 2021.
Property realtors believe that if inflation drops below 4% in October, South Africans can expect a repo rate drop of 50 basis points can be expected in November.
Here is a look at how the 25 basis point cut will reduce home loan repayments.
– For a R2 million home loan, the monthly home loan repayment will go from from R21,674 to R21,329. This means that homeowners will have R345 back in their pockets.
– For a R2.5 million home loan, the monthly home loan repayment will drop from R27,093 to R26,661. This a saving of R432.
Property industry executives react
Samuel Seeff, the chairman of the Seeff Property Group said they hoped this would be the first of many interest rate cuts to come.
“We would have liked to have seen a 50bps cut, but we are happy to take 25bps, and hope this is the first of more rate cuts to follow.”
According to Seeff, the rate cut has been hotly anticipated by the property market as there is a lot of demand in the market, with estate agents, sellers and buyers all eagerly anticipating that this cut will have a positive impact.
Adrian Goslett, Regional Director and CEO, RE/MAX Southern Africa said that this interest rate cut is a much welcome relief.
“This cut is likely to be the first of an interest rate cutting cycle, hopefully with another cut to be announced in November. Beyond that is difficult to predict,” Goslett said.
“The cut will have some bearing on consumer sentiment now, but it is likely to only affect decision making further down the line once the market adjusts to the lower interest rates. The problem with waiting too long is that once the majority of potential buyers decide to invest, demand has already hit higher levels. And when that happens, house prices go up.
“If interest rates come down again in November, that would mean that the repayment on the mortgage a buyer negotiates now will be at its highest level. It will almost surely decrease, leaving a buyer with more disposable income or allowing them to pay in more, shorten their loan term and reduce their total repayment on a home loan.”
Chris Tyson, Tyson Properties CEO is optimistic that interest rate cut signals the beginning of a rates cut cycle with another due by year-end, however, property owners are encouraged to invest wisely going forward.
From Stephen Whitcombe, MD, Firzt Realty said that for existing homeowners, many of whom have variable-rate home loans, the cut of interest rates means an immediate decrease in the minimum monthly repayment.
Whitcombe said this interest rate cut would make loans more affordable and reduces the chance of them defaulting and losing their home.
It can also give them the opportunity to pay off more than the minimum on their home loan each month which could save them many thousands of rands over the life of their home loan.
“For home buyers, interest rate cuts mean smaller home loan repayments and greater affordability,” Whitcombe said.
“This means that buyers may be able to purchase a home sooner than they thought, or that they may be able to afford a more expensive home than they could at higher interest rates.”
Dr Andrew Golding, Chief Executive, Pam Golding Property Group said that the interest rate cut is a major positive for the SA housing market, especially in Spring when residential market activity begins picking up again.
“Hopefully this is the start of the long-awaited interest rate cutting cycle, and with things moving both globally and locally in a more favourable direction, it provides scope for further rate cuts and significant relief for households and, therefore, a more supportive environment for a recovery in the housing market during the next 12-18 months.”
Golding said that interest rates begin to lower and affordability returns to the property market, it can be anticipates that first-time buyers and those requiring loans will come to the fore.
He also anticipates that any regions or districts which can be seen to have benefited from a change in governance since the May elections could potentially see a rebound in prices and activity.
“Going forward, our outlook for the residential property market is optimistic, backed by an uptick in activity across all sectors of the market, including the luxury market which has proven resilient over the past few year,” Golding said.
The 25 basis point decline will cut home loan repayments as follows:
– R750,000 home loan: from R8,128 to R7,998 saving R130
– R900,000 home loan: from R9,753 to R9,598 saving R155
– R1 million home loan: from R10,837 to R10, 664 saving R173
– R1.5 million home loan: from R16,256 to R15,996 saving R260
– R2 million home loan – from R21,674 to R21,329: saving R345
– R2.5 million home loan: from R27,093 to R26,661 saving R432
IOL Property