R500 per month relief for homeowners in South Africa right around the corner
The South African Reserve Bank (SARB) is expected to start the rate-cutting cycle next month, with two 25bps cuts expected by year-end, meaning R475 per month relief for the average homeowner with a bond repayment.
For more than a year, high interest rates have significantly increased the financial burden on South African homeowners.
Rising mortgage repayments have strained household budgets, making it difficult for many to meet their monthly obligations.
This has led to reduced disposable income, putting pressure on consumers and impacting overall economic spending.
However, the inflation environment has finally turned a corner, with interest rate cuts widely expected.
Key economists expect a 25-basis-point rate cut at the next meeting in September 2024, likely followed by another 25-basis-point cut at the final meeting in November.
This broadly reflects South Africa’s forward rate agreement (FRA curve), which is now factoring in almost an 80% chance of a 25bp interest rate cut at the September MPC meeting and just above a 40% chance of another at the November MPC meeting.
Investec’s chief economist, Annabel Bishop, mentioned that while the possibility of a US recession is not the base case, the slowdown of the US economy creates a strong likelihood of an interest rate-cutting cycle starting in the US from September.
The Fed is expected to cut interest rates by at least 25 basis points at its next three FOMC meetings—in September, November, and December—followed by additional cuts in January, March, May, and June of the following year.
This would result in a total drop of the Fed funds rate by 175 basis points by the end of the first half of 2025, with an additional 25 basis point cut anticipated in July 2025, and a further cut of 25 basis points by October 2025, resulting in a total 2.0% reduction.
This, combined with the expected Fed cuts, suggests that the South African Reserve Bank should have confidence in beginning to lower the repo rate at its next meeting.
Property Market experts agree with the economists.
Samuel Seeff, chairman of the Seeff Property Group, said it has become clear that conditions are now favourable for the Reserve Bank to cut the interest rate.
The Bank of England’s recent cut in the UK interest rate signals that it is time for it to come down.
“A rate cut will relieve consumers and property buyers. In addition to lowering the cost of debt and freeing up more from household budgets, it will also bring down the cost of homes,” said Seeff.
Although bank lending conditions remain strong, an uptick in the market will further boost the banks.
The expected cuts for this year would effectively reduce the prime rate from 11.75% to 11.50% and then to 11.25%.
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 R475less per month on their bond repayments at 11.25% (forecasted prime by year-end).
However, this increases with the price of the home, as those who bought an R2 million house will pay R688 less per month, while the few who purchased an R5 million house pay a notable R1,722 less per month.
This is illustrated in the table below.
| Bond value | Current 11.75% | 25bps cut 11.50% (September) | Saving | 25bps cut 11.25% (November) | Saving | Total saving |
|---|---|---|---|---|---|---|
| R850,000 | R9,212 | R9,065 | R147 | R8,919 | R146 | R293 |
| R1,000,000 | R10,837 | R10,664 | R173 | R10,493 | R171 | R344 |
| R1,370,000 | R14,923 | R14,685 | R238 | R14,448 | R237 | R475 |
| R1,500,000 | R16,256 | R15,996 | R260 | R15,739 | R257 | R517 |
| R2,000,000 | R21,674 | R21,329 | R345 | R20,985 | R344 | R688 |
| R2,500,000 | R27,093 | R26,661 | R432 | R26,231 | R430 | R862 |
| R3,000,000 | R32,511 | R31,993 | R518 | R31,478 | R515 | R1,033 |
| R3,500,000 | R37,930 | R37,325 | R605 | R36,724 | R601 | R1,206 |
| R4,000,000 | R43,348 | R42,657 | R691 | R41,970 | R687 | R1,378 |
| R4,500,000 | R48,767 | R47,989 | R778 | R47,217 | R772 | R1,550 |
| R5,000,000 | R54,185 | R53,321 | R864 | R52,463 | R858 | R1,722 |
This positive shift is expected to continue into 2025, with forecasts of a 150 bps cut in total by July 2025.
This would equate to the average homeowner paying R1,406 less per month on their bond repayments.
Seeff added there is a strong desire for home ownership in the country, but the high interest rate and uncertainty around the economy remain a dampener.
“Bringing down the rate will be just the catalyst that hesitant buyers need,” he said.
Ultimately, the property market would like to see the prime rate come back down to around 10% to 10.5%, which would stimulate economic growth and, with that, a tremendous boost for property sales.
“Nonetheless, a 25bps cut would be welcome, but 50bps would be better,” said Seeff.
Read: The province in South Africa where tenants are a landlord’s worst nightmare
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