R1,400 per month relief for homeowners in South Africa is coming

The South African Reserve Bank (SARB) is expected to cut interest rates by up to 150 basis points by mid-year 2025, which could result in the average homeowner saving R1,406 per month on their bond repayment.

The South African Reserve Bank’s (SARB’s) Monetary Policy Committee voted to hold rates in May, keeping the repo rate at 8.25% and the prime lending rate at 11.75%.

Economists expect the South African Reserve Bank (SARB) to keep rates at 8.25% when its Monetary Policy Committee meets in July, but they hope interest rate cuts will be pushed back to the next meeting in September as soon as possible.

Investec chief economist Annabel Bishop, however, is also more cautious in calling a September rate cut, pointing to a more moderate November cut or possibly in January 2025.

Looking forward, the Bank of America (BofA) expects cuts of 25bp each to start from January 2025, with a cumulative 100bp in January, March, May and July.

This seems to align with momentum, which also expects a 100bps cut by mid-year 2025.

Despite this, Investec forecasts that the cutting cycle will terminate after a 150 basis point drop, which could end around the middle of 2025 at the July meeting (repo rate at 6.75%).

Investec’s forecast is outlined below:

This maximum forecast of 150bps will bring much-needed relief for homeowners with bond repayments in South Africa, and it’s expected to commence as soon as November.

Interest rates have been on hold 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 current rates will pay R1,406 less per month on their bond repayments at 10.25% (forecasted prime by July 2025).

However, this increases with the price of the home, as those who bought an R2 million house will pay R2,041 less per month, while the few who purchased an R5 million house pay a notable R5,103 less per month.

The table below highlights how much you’ll save on your bond every month if the forecasted 150 bps interest rate cuts come into effect next year.

Several property experts have noted that decisions to hold interest rates are disappointing and that the property market needs a rate cut.

According to Samuel Seeff, chairman of the Seeff Property Group, The economy was just starting to grow again when the rate was below 10%, and at 11.75%, it is simply too high and damaging to the economy and property market.

“Even just a 25bps cut will send a strong signal that the Bank is confident about the economy and that better times for growth are just around the corner, which will have a huge knock-on effect,” he said.

He added that South Africa has seen a significant value erosion in the property market.

This is concerning for the economy, given that property is one economic sector with a significant multiplier effect and value chain that benefits from real estate transactions, from property taxes to agent commissions, attorney fees, movers, renovators, and so on.

Positive growth in the real estate sector is also a catalyst for further housing and infrastructure development and growth, he added.

“We have not seen this much positive sentiment for some time, but the interest rate remains a barrier that is holding back any real uptick in the economy and property sales volumes and prices,” Seeff said.

Read: What you can get in the most affordable city to buy and rent property in South Africa