R1,800 joy for house and car owners in South Africa to kick off this month
The average South African with a bond and car loan can expect R1,800 per month relief by July 2025, starting with R301 per month if the Reserve Bank’s MPC starts cutting interest rates this month.
Since the rate hike cycle began in November 2021, interest rates have surged by 475 basis points (bps), reaching the highest levels seen in 15 years.
Over the past year and a half, the South African Reserve Bank (SARB) has kept interest rates on hold at these elevated levels, exacerbating financial pressures on households already grappling with rising costs for essentials like electricity, fuel, and property taxes.
The effects of these prolonged high rates have been particularly pronounced in areas such as home and vehicle repayments.
According to the latest DebtBusters Debt Index report for Q2 2024, those who filed for debt counselling are currently paying an average interest rate of 12.3% on their home loans and 15.3% on car loans.
Data from Lightstone for Q1 2024 highlights that the average property value in South Africa is around R1,377,014.
Similarly, WesBank reports that the average amount financed for a new vehicle is approximately R410,000.
These figures help quantify the financial strain caused by the surge in interest rates since the hike cycle began.
For instance, South Africans who purchased a home valued at R1.3 million at the start of the rate hike cycle have seen their bond repayments increase by an additional R4,800 per month due to the 12.3% interest rate.
This translates to an extra R76,400 in bond repayments alone over the last 18 months.
Similarly, individuals who financed a vehicle with an average value of R410,000 have been paying an additional R1,705 per month, amounting to R25,575 over the same period.
This cumulative financial strain has led to significant distress among many households.
Credit bureau TransUnion has reported that delinquencies on both home loans and vehicle asset finance (VAF) have worsened year-on-year in 2024, indicating that many South Africans are struggling to keep up with their repayment obligations.
Relief is on the way
Despite these tough economic conditions, there is a glimmer of hope on the horizon as the SARB is now widely expected to reduce interest rates in response to improving inflation data.
According to Stats SA, inflation figures released in August 2024 surprised many by dropping from 5.1% in June to 4.6% in July—lower than the anticipated 4.9%.
Yvonne Mhango, Africa Economist at Bloomberg, noted that this better-than-expected inflation data could trigger the start of a rate-cutting cycle as early as September 2024.
Prior to this, several financial institutions and economists, including Nedbank, Bank of America, Standard Bank, and the Bureau for Economic Research, had already predicted a potential cut in the repo rate.
The market now expects an interest rate cut of at least 25 basis points (bps) in September, providing immediate relief for South Africans with mortgages and car loans.
For the average homeowner and vehicle owner, a 25 bps cut would result in monthly savings of approximately R301.
This rate cut is likely to be followed by another 25 bps reduction in November 2024, offering further financial relief.
This outlook is supported by South Africa’s forward rate agreement (FRA) curve, which is now pricing in an 80% chance of a 25 bps cut in September and a 40% chance of another reduction in November.
Annabel Bishop, chief economist at Investec, noted that while the risk of a US recession remains low, the slowdown of the US economy could lead to a similar interest rate-cutting cycle by the Federal Reserve.
The US Federal Reserve is expected to reduce interest rates by 25 bps at its upcoming Federal Open Market Committee (FOMC) meetings in September, November, and December 2024, with further cuts likely in the first half of 2025.
By the end of H1 2025, the Fed could lower its funds rate by a total of 175 bps, with an additional 50 bps cut forecasted for later that year.
These cuts could result in a total rate reduction of 2.0% by the end of 2025.
For South African consumers, this positive shift could bring substantial relief over the next year.
Forecasts indicate that by July 2025, the cumulative rate cuts may lead to a 150 bps reduction, resulting in significant savings for homeowners and vehicle buyers.
This would equate to the average home and car owner paying R1,800 less per month on their repayments (R1,425 on a R1.3 million house and R350 on a R410,000 car loan).
These savings increase substantially for higher-value assets.
Homeowners with properties valued at R2 million could save R2,069 per month, while those with R5 million homes could enjoy a notable reduction of R5,173 per month.
Similarly, those who financed more expensive vehicles, such as an R800,000 car, could save R628 monthly, while owners of R1.2 million vehicles could benefit from a R940 monthly reduction.
While the current financial strain has been severe, the upcoming rate cuts promise to bring much-needed relief to South African households.
Loading ...
