Rate cut a welcome boost for consumers and homeownership
South Africa’s latest interest rate cut—from 10.75% to 10.50%—brings much-needed relief for consumers and aspiring homeowners. With borrowing costs down, monthly bond repayments are now more affordable, opening doors for more buyers and offering sellers renewed market momentum.
Today’s announcement that the Reserve Bank has decided to cut the repo rate by another 25bps to 7.00% (from 7.25%), and the prime rate to 10.50% (from 10.75% ) is welcome news for the economy and property market, says Samuel Seeff, chairperson of the Seeff Property Group.
This is the third interest rate cut this year (fifth since September last year). Seeff says it is the correct decision given that inflation (at 3% for May) is below the Bank’s target range, and the currency has been stable, trading at times below R18/USD.
While this cut brings welcome relief for consumers by reducing borrowing costs and putting more money back into their pockets to spend in the economy, Seeff says it is still not enough. More needs to be done to really give the economy the rocket boost that it needs.
Nonetheless, the rate cut will make home loans more affordable, and property buyers will find it slightly easier to qualify, thus opening more doors to homeownership. The total rate cuts since September mean that the interest rate will now be 1.25% lower compared to last year. The repayment on a bond of R1m (over 20-years) will therefore now be reduced by around R853 per month.
We would therefore certainly encourage buyers to take advantage of the opportunities in the market, Seeff says further. Higher demand and improved house price appreciation at around 3.7% nationally (topping inflation for the first time in two years) also provides incentive for sellers, especially since many areas are in need of more property listings.
While the rate cuts have been well received, Seeff says the economy and property market have not yet felt any notable impact from the rate cuts. The first quarter GDP growth was disappointing. After an initial surge, the overall property transaction volumes for the first half of this year are about 16% below the same time last year.
Bolder rate cuts are needed. Since the interest rate (even after the latest cut) is still higher compared to January 2020 before the onset of the Covid-pandemic, we continue to urge the Bank to step up with more cuts now while inflation is contained, and the currency stable.
As a result of the 25bps rate cut, mortgage repayments will reduce by:
R750 000 bond – from R7,614 to R7,488 – saving R126
R900 000 bond – from R9,137 to R8,985 – saving R152
R1 000 000 bond – from R10,152 to R9,984 – saving R168
R1 500 000 bond – from R15,228 to R14,976 – saving R252
R2 000 000 bond – from R20,305 to R19,968 – saving R337
R2 500 000 bond – from R25,381 to R24,960 – saving R421
R3 000 000 bond – from R30,457 to R29,951 – saving R506
R5 000 000 bond – from R50,761 to R49,919 – saving R842
(Based on a 20-year repayment period at the prime rate)
Issued by Gina Meintjes
