The South African Reserve Bank’s (SARB) Monetary Policy Committee (MPC) yesterday (19 September) announced a 0,25 basis point cut, taking the interest rate down to 8%, with the prime lending rate now set at 11,50%.
This cautious approach brings a small sigh of relief to strapped households, who have struggled with the cumulative 475 basis point hike since 2021. With inflation easing considerably, the SARB having reached its target range, inflationary pressures appear to be easier to manage, although inflation will always remain a concern. If inflation drops to below 4% in October, we have no reason not to expect the repo rate to drop again in November, even by as much as 50 basis points.
While the lower interest rate will reduce the cost of borrowing, it also signals the start of a turnaround for the property sector, hopefully stimulating property purchases.
The 0,25 basis point cut will reduce 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 000 000 home loan – from R10 837 to R10 664: saving R173
- R1 500 000 home loan – from R16 256 to R15 996: saving R260
- R2 000 000 home loan – from R21 674 to R21 329: saving R345
- R2 500 000 home loan – from R27 093 to R26 661: saving R432
The property market has responded positively.
Samuel Seeff, chairman of the Seeff Property Group, comments: “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.
“The rate cut has been hotly anticipated by the property market. There is a lot of pent-up demand in the market, with estate agents, sellers and buyers all eagerly anticipating that this cut will have a positive impact. We certainly believe that we are potentially in one of the best markets for property buyers.
“Buyers are, therefore, able to find good value, and they should take advantage before the market takes off again.
“Buying now means you can find property at prices similar to what they were two years ago, and can potentially then benefit from capital appreciation as property values tick up again.”
Adrian Goslett, regional director and CEO of RE/MAX of Southern Africa, says: “This cut will create much welcome relief. This should be a positive step forward for house price appreciation. 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.
“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, CEO of Tyson Properties is optimistic that this signals the beginning of a rates cut cycle with another due by year-end but encourages property owners to continue to invest wisely going forward. Together with Bradd Bendall, head of sales at Betterbond, Tyson notes that the SARB’s long awaited rate cut does not put a substantial amount back into the pockets of home owners.
“The meaningful change comes if homeowners continue to repay their home loans at the pre-interest rate cut amount against a reduced monthly repayment. The period of the bond will reduce by approximately 2,5 years on a R1-million bond.”
Going forward, Tyson expects a few more cuts with rates ultimately coming down by about 2% between now and the end of next year.
“That is what the country needs. All the indicators are there for a good run, property wise, for the next 18 months. Over the long-term and should the interest rate decline continue, Tyson envisages that the residential property market will move from a buyer’s market to a normal market within two years.”
According to Stephen Whitcombe, MD of the Firzt Realty group: “Most economists are agreed that it signals the start of a rate cutting cycle that will last well into next year and may well see the prime rate fall to below 10% – barring any unforeseen global or local disasters that cause a sudden increase in inflation.
“For existing homeowners, the majority of whom have variable-rate home loans, interest rate cuts mean an immediate decline in the minimum monthly repayment. This makes the loan more affordable and reduces the chance of them defaulting and losing their home … it may even give them an opportunity to pay off more than the minimum on their home loan each month – a practice which will increase their equity in the property – and could save them many thousands of rands over the life of their home loan.
“For homebuyers, interest rate cuts mean smaller home loan repayments and greater affordability. 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 of the Pam Golding Property group, says: “This is a major positive for the housing market, particularly in spring when residential market activity conventionally 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 to 18 months.
“In the local residential property market we have seen a shift to cash purchases and investment acquisitions during this period of relatively high interest rates, but as interest rates begin to decline and affordability returns to the market we anticipate that first-time buyers and those requiring loans will come more to the fore.
“With the formation of the GNU (Government of National Unity) having been well received by financial markets, we also anticipate 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 years.”