R850 per month relief on the cards for homeowners in South Africa

Although the South African Reserve Bank (SARB) is widely expected to keep interest rates unchanged at its upcoming Monetary Policy Committee (MPC) meeting, experts believe there is still room for a 25 basis point cut.

This would mean a cumulative R856 per month saving for the average homeowner with a bond since the rate-cutting cycle started at end of 2024.

Most economists predict the SARB will stay on the side of caution, especially amid global economic uncertainty. 

However, the decision is unlikely to be unanimous. A growing minority of analysts argue that the recent easing in inflation provides a compelling case for a small rate cut. Forward rate agreements are already pricing in such a move.

The Bureau for Economic Research (BER) said that there are three ways to assess the SARB’s policy stance: what it could do, what it should do, and what it will do. 

While these don’t always align, the BER believes the SARB will likely hold steady again. Despite this, it added that, in hindsight, the central bank should have started the year with more aggressive rate cuts.

Earlier in the year, the SARB kept rates steady as financial markets were roiled by a second term for US President Donald Trump, whose tariff war began soon after. 

However, with Trump pausing his tariff measures for 90 days, stability is slowly returning, giving central banks more leeway.

In response to ongoing stabilisation of global markets, at least 15 major central banks, including those in the UK, Europe, China, and Mexico, have already cut rates since early April. 

For example, the Reserve Bank of Australia cut rates to a two-year low despite acknowledging global risks. 

Local economists have noted that the SARB could follow suit, especially as inflation remains subdued.

The Bank of America (BofA) is more optimistic than most, predicting that the SARB could deliver rate cuts in May and July. 

Following a three-day visit to South Africa, the bank expects the policy rate to drop to 7% by the end of July. 

It cites benign inflation, lower oil prices, and a weakening US dollar as key drivers and forecasts headline inflation to average just 3.6%.

According to BofA, the risks around interest rates are “skewed to more, rather than less,” suggesting rate relief could come sooner than many expect.

How much homeowners are expected to save 

The latest oobarometer report highlighted that the average home price in South Africa has climbed to R1,661,519. This means a 0.25% drop in interest rates could bring notable relief to homeowners.

A stable interest rate environment, expectations of further rate cuts, and better economic prospects have had a positive effect on the market. 

“They are fundamental drivers behind home loan application volumes increasing by 18% in the first quarter of 2025,” said Rhys Dyer, CEO of the ooba Group.

“The total value of bonds granted also increased sharply (up 22.3%), reflecting a shift toward higher-value property purchases.”

“We’re now comfortably exceeding the R1.6 million mark, with expectations that house prices will continue to rise modestly throughout 2025.” 

The average purchase price among first-time homebuyers also increased, this time by 4.5%, year-on-year, reaching R1,247,810 in Q1 2025.

A 25bps cut would reduce the monthly repayment on a loan of this size by approximately R856 since the rate-cutting cycle began in September when rates were at 11.75%. 

Those with larger home loans—up to R5 million—could see monthly savings of as much as R2,576.

However, the savings offered by the cuts could be short-lived as homeowners are expected to struggle with rising costs in other areas.

While inflation remains low, price hikes in essential services like electricity and water continue above inflation, which could quickly offset any reductions in bond repayments.

Additionally, Finance Minister Enoch Godongwana announced an increase in the General Fuel Levy (GFL) to make up for the withdrawal of the VAT hike. 

Despite these pressures, a lower interest rate could provide much-needed support for the property market and household finances.

Rate cuts generally enhance affordability and encourage homebuying while easing existing homeowners’ financial burden.

That said, economic uncertainty remains. Factors such as global monetary policy shifts, inflation risks, and the rand’s volatility are still concerns. The SARB’s MPC will announce its interest rate decision on 29 May.

The potential savings since the start of the rate-cutting cycle if the MPC cuts rates by 25bps based on different property prices are illustrated in the table below.