How much you save on a R1 million bond after the interest rate cut

The Monetary Policy Committee of the SA Reserve Bank has announced it will cut the repo rate by 25bps from 6.75% to 6.50%.

The base home loan rate has dropped from 10.25% to 10%, with the property sector praising the decision as it is likely to have a direct positive knock-on effect for homeowners.

Specifically, Rhys Dyer, CEO of South Africa’s biggest bond originator Ooba, said that the lower rate will stimulate the residential housing market, as prospective homebuyers will now find it easier to afford the repayments on a new home loan.

“The current South African property market outlook remains cautiously favourable with moderate house price growth, relatively low interest rates and an increased appetite from the major lenders to lend,” he said.

Ooba calculated that on a R1 million home loan, this Reserve Bank decision will save South African home owners approximately R39,900 over a 20 year term.

This means that the home buyer will be saving approximately R166 on their monthly bond repayments, it said.

However, Dr Andrew Golding, CEO of the Pam Golding Property group, cautioned that the effects of the cut might not be directly felt for some time.

“The benefits of this modest reduction may take longer than usual to be felt as households will need to adjust to the hike in VAT and the general increase in the tax burden via the fuel levy and other tariffs such as electricity, water and property rates,” he said.

“Having said that, for the calendar year to date – and based on Pam Golding Properties’ sales – activity in the marketplace remains brisk in sought-after hubs and locations, and there is generally a solid demand for properties on offer at market-related prices.

“Buyers continue to demonstrate a willingness to embark on first-time acquisitions as well as properties for upgrading or downsizing, or simply relocating, depending on their individual requirements,” he said.

These sentiments were echoed by Samuel Seeff, chairman of the Seeff property group, who said that the cut will provide much needed stimulation for the market and, after a very flat 2017, will hopefully be an energy boost to encourage buyers and investors.

Although the rate cut was largely expected, Seeff said that it is a welcome reprieve for consumers and property owners who face higher living costs due to the 1% VAT hike taking effect on the 1st April.

Read: Reserve Bank cuts repo rate by 25 basis points

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How much you save on a R1 million bond after the interest rate cut