Standard Bank warning for homeowners in South Africa
Standard Bank has warned that, while interest rate cuts will help cash-strapped households, it will not alleviate all the financial pressure that many are facing – including higher admin and servicing costs, rates and taxes.
Amidst the easing inflationary environment locally and globally, the prospect that the South African Reserve Bank (SARB) will cut interest rates in Q3 2024 has increased.
Standard Bank is expected to have two interest rate cuts by the end of the year, with the first of two 25 basis points cuts scheduled in September.
South Africa’s largest bank by assets expects two further cuts in the first half of 2025 as inflation cooled into the South African Reserve Bank’s target range of 3% to 6% (5.2% in May).
Following the last Monetary Policy Committee (MPC) meeting, many economists brought forward their expectations of a cut after two of the six members called for a 25 basis point cut.
For instance, Bank of America brought forward its expectations of the first cut from January 2025 to September 2024 amid a more dovish sentiment.
Although the cut in rates will reduce monthly mortgage commitments, Standard Bank says higher administrative and home servicing costs, such as rates and taxes, will keep clients under pressure.
The interest rate hiking cycle started in November 2021, driven primarily by the COVID pandemic, local energy issues and volatile food and oil prices.
Consumers with a R1 million bond on their hones would have seen their interest rate repayments increase by roughly R4,000 per month today—a 40% increase in instalments since November 2021.
Although rates are predicted to edge lower in September, the benefits to customers could
“Despite rates predicted to edge lower, benefits to customers might take a bit longer to filter through. Since November 2021, the price of electricity has increased by an average of almost 30%, or 23% above inflation,” said Thabani Ndwandwe, chief risk officer at Standard Bank SA.
“This added more pressure on households struggling to balance household finances.”
That said, after the first 25 basis point rate cut, homeowners can expect to save R208 per month or R2,500 per year on their repayments for a bond worth R1 million.
If the rate cuts expected in the first half of 2025 cut an additional 50 basis points, homeowners could pay R625 less per month for an R1 million property in a year’s time.
With R1.2 trillion in mortgages in South Africa, a 50 basis point cut will free up over R4 billion going towards instalments per annum.
“The relief will go a long way in softening the blow caused by the increase in monthly property servicing costs like rates and taxes,” said Standard Bank.
“In cities such as Johannesburg, electricity tariffs increased by 12.7% on 1 July, while property rates increased by 3.8%. Tariffs for refuse collection, water and sanitation have also increased at a pace that has outstripped inflation.”
In addition to these increases, the City of Johannesburg’s prepaid electricity customers will receive an additional R200.00 fixed charge every month, even if local political developments could stop this.
Prior to these increases, South Africa’s property sector was already struggling from the increased cost of living.
Ooba Home Loans’ latest barometer showed that the number of new home loan applications in Q1 2024 was 9% lower than in Q1 2023 and 25% behind Q1 2022.
“A reduction in interest rate should lead to a recovery of home loan application volumes, which had already started rowing by 8% since the last quarter of 2023. However, this growth will likely be muted by municipal tariff hikes,” said Ndwandwe.
Loading ...
