Property

This is how much money you will save on a R1 million bond after the rate cut

Staff Writer

 ·19 Mar 2020

The South African Reserve Bank’s Monetary Policy Committee decision to cut the repo rate by 100 basis points will give the economy a much-need boost in light of the ongoing effect the Covid-19 pandemic, says Carl Coetzee, chief executive officer of bond originator BetterBond.

“The full scale of the pandemic is still revealing itself in South Africa,” said Coetzee. “Our country is not immune to the uncertainty that has gripped international markets in what are proving to be very uncertain times.”

For first-time buyers and those who have had their sights set on an ideal property for a long time, this rate brings the dream of home ownership significantly closer, he said.

Below he outlined the effect of the drop in the interest rate on a 20-year bond:

*Table based on a decrease in the prime rate by 1% from 9.75% to 8.75%.

“The lower interest rate and the fact that some banks are granting 100% home loans to candidates who meet the necessary requirements is optimistic for buyers,” said Coetzee.

“Furthermore, the recent announcement by Finance Minister Tito Mboweni that transfer duty does not apply to the first R1 million on property purchases is another positive for those looking to enter the property market.”

Coetzee said that these measures by Treasury are all designed to ease the financial pressure on consumers and to raise confidence in their ability to maintain their monthly home loan repayments, which is very positive and much needed.

In his statement on Thursday, South African Reserve Bank governor Lesetja Kganyago said that low inflation has created space for monetary policy to respond to deteriorating economic conditions.

The bank’s headline consumer price inflation forecast averages 3.8% for 2020, 4.6% for 2021, and 4. 4% in 2022. The forecast for core inflation is lower at 3.9% in 2020, 4.3% in 2021, and 4.4% in 2022.

The domestic economic outlook remains fragile, Kganyago said. “At this point, Covid-19 is likely to result in weaker demand for exports and domestic goods and services, but its impact on the economy could be partly offset by lower oil prices.

“We also expect disruptions to supply chains and to normal business operations,” he said.

Read: SA Reserve Bank cuts repo rate by 100 basis points