Here’s how much money you will save on a R1 million bond after the latest rate cut

The surprise announcement by the governor of the Reserve Bank, Lesetja Kganyago, of a further drop in the repo rate by 100 basis points, to 4.25% per annum, is welcome news for the property sector as it takes the prime lending rate down to 7.75%, notes bond originator, BetterBond.

This 1% drop in the interest rate allows for significant savings, particularly in the long term, said Carl Coetzee, BetterBond chief executive officer.

Any measures that seek to stimulate the market and ease the financial burden on the consumer’s pocket is a step in the right direction to buoy the property market.

“But while the drop in the repo rate is a good start, additional strategies will need to be put in place to secure the long-term survival of the industry,” Coetzee said.

One such measure could be to suspend the transfer duty on property valued up to a certain amount, he said.

Raising the threshold on transfer duty, which currently stands at R1 million, to R3 million for a limited period of time, such as six months (with the option of reviewing after six months), could mitigate the risk of the industry contracting significantly as we start, what is sure to be, a slow economic recovery.

“The savings to the buyer could mean the difference between both the confidence and the financial means to buy property, while government’s loss of income is set to be relatively low over the proposed six-month period.

“Government revenue is likely to be matched by the benefits gained on collecting tax on the earnings of all players within the property industry, and even the capital gains payable on properties sold, if such a stimulus measure were to be implemented,” said Coetzee.

A second measure that could go a long way in keeping the property sector ticking over is to reopen deeds offices around the country for the remainder of the lockdown, albeit at reduced capacity, he said.

“With the deeds offices closed, thousands of transactions are placed on hold, which effectively means a loss of income for thousands more who are directly and indirectly involved in related sectors and services.

“Furthermore, the backlog that will have to be cleared when it does reopen will add additional strain,” said Coetzee.

BetterBond noted that in a typical month in South Africa, between 10,000 and 12,000 bonds are registered in the deeds office and, as a sector, property contributes significantly to the GDP, supported by the fact that the deeds office processed R12 billion in registrations in April 2019.

The effect of the drop in the interest rate on a 20-year bond:

Bond amount Interest savings over 20 years Monthly savings
R250 000 R37 657 R157
R500 000 R75 315 R314
R750 000 R112 972 R471
R1 000 000 R150 629 R628
R1 250 000 R188 286 R784
R1 500 000 R225 944 R942
R2 000 000 R301 258 R1 255
R3 000 000 R451 887 R1 883

*Table based on a decrease in the prime rate by 1% from 8.75% to 7.75%.

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Here’s how much money you will save on a R1 million bond after the latest rate cut