R5,000 per month pain for homeowners in South Africa almost over
Debt data shows that the average homeowner with a bond has been paying almost R5,000 more every month since the interest rate hike cycle started, but relief is expected to begin in October.
Since the start of the rate hike cycle in November 2021, rates have been hiked by 475bps to the highest levels in 15 years.
Interest rates have been on hold at this level since the last policy rate decision a year ago, maintaining the financial pressures on households that have also had to absorb other hikes, such as electricity, fuel, and property rates.
According to Lightstone’s data for the first quarter of 2024, the average property value in South Africa stood at R1,377,014.
This means those who bought a house at this value at the start of the hike cycle at 7% (prime September 2021) have been paying an extra R4,247 per month on their bond repayments at 11.75% (prime since June 2023).
This amounts to an extra R67,952 over the past year and a half (June 2023 to September 2024).
However, this extra cost is even worse when you look at the average interest rate applied to a bond in South Africa in Q2 2024.
The latest DebtBusters Debt Index report for Q2 2024 shows that the average interest on a bond among those that field for debt counselling is around 12.3%.
This means that on an average home of R1.3 million, a homeowner has been paying an extra R4,800 per month, or an extra R76,400, over the past year and a half.
This has rippled across homeowners with existing loans as well as first-time homebuyers in the country.
Data from TransUnion shows that in the first quarter of 2024, although new loan amounts have decreased, the total outstanding home loan balances have increased by 7.6% year over year.
TransUnion said this is because existing home loan borrowers are using their home equity to access liquidity.
Consumers are probably tapping into their existing home loans because they offer more favourable interest rates compared to obtaining new credit for consumption-related products, given the high cost of living.
At the same time, home loan delinquencies have worsened by 140 basis points year over year, warning lenders to take a more proactive approach in anticipating and managing delinquencies that could arise from consumers facing payment difficulties due to high interest rates.
Relief is on the way
Despite the tough times, the SARB is now widely expected to cut interest rates on the back of good inflation data.
Inflation numbers from Stats SA surprised on Wednesday (21 August), dropping from 5.1% in June to 4.6% in July.
This is compared to the markets, which were anticipating a print of around 4.9%.
Yvonne Mhango, Bloomberg’s Africa Economist, said this would kick start the rate-cutting cycle in September.
Before the better-than-expected July inflation data, several financial institutions and economists, including Nedbank, Bank of America, Standard Bank, and the Bureau for Economic Research, also believed that the Repo rate would be cut.
This means an interest rate cut of at least 25 bps is almost certain next month, which will translate into an immediate R475 per month relief for the average homeowner with a bond repayment.
This will likely be followed by another 25 bps cut in November.
This broadly reflects South Africa’s forward rate agreement (FRA curve), which is now factoring in almost an 80% chance of a 25bp interest rate cut at the September MPC meeting and just above a 40% chance of another at the November MPC meeting.
Investec’s chief economist, Annabel Bishop, mentioned that while the possibility of a US recession is not the base case, the slowdown of the US economy creates a strong likelihood of an interest rate-cutting cycle starting in the US from September.
The Fed is expected to cut interest rates by at least 25 basis points at its next three FOMC meetings—in September, November, and December—followed by additional cuts in January, March, May, and June of the following year.
This would result in a total drop of the Fed funds rate by 175 basis points by the end of the first half of 2025, with an additional 25 basis point cut anticipated in July 2025 and a further cut of 25 basis points by October 2025, resulting in a total 2.0% reduction.
This means those who bought a house at this value at the current rates will pay R475less per month on their bond repayments at 11.25% (forecasted prime by year-end).
However, this increases with the price of the home, as those who bought an R2 million house will pay R688 less per month, while the few who purchased an R5 million house pay a notable R1,722 less per month.
This is illustrated in the table below.
| Bond value | 11.75% Current | 11.50% (September) | Saving | 11.25% (November) | Saving | Total Saving |
|---|---|---|---|---|---|---|
| R850,000 | R9,212 | R9,065 | R147 | R8,919 | R146 | R293 |
| R1,000,000 | R10,837 | R10,664 | R173 | R10,493 | R171 | R344 |
| R1,370,000 | R14,923 | R14,685 | R238 | R14,448 | R237 | R475 |
| R1,500,000 | R16,256 | R15,996 | R260 | R15,739 | R257 | R517 |
| R2,000,000 | R21,674 | R21,329 | R345 | R20,985 | R344 | R688 |
| R2,500,000 | R27,093 | R26,661 | R432 | R26,231 | R430 | R862 |
| R3,000,000 | R32,511 | R31,993 | R518 | R31,478 | R515 | R1,033 |
| R3,500,000 | R37,930 | R37,325 | R605 | R36,724 | R601 | R1,206 |
| R4,000,000 | R43,348 | R42,657 | R691 | R41,970 | R687 | R1,378 |
| R4,500,000 | R48,767 | R47,989 | R778 | R47,217 | R772 | R1,550 |
| R5,000,000 | R54,185 | R53,321 | R864 | R52,463 | R858 | R1,722 |
This positive shift is expected to continue into 2025, with forecasts of a 150 bps cut in total by July 2025.
This would equate to the average homeowner paying R1,406 less per month on their bond repayments.
Loading ...
