Relief on the cards for Homeowners in South Africa
The South African Reserve Bank (SARB) is likely to reduce interest rates by 150 basis points by mid-2025. This could mean that the average homeowner saves R1,406 per month on their bond payments.
The South African Reserve Bank decided to keep interest rates steady in May. The repo rate remains at 8.25% and the prime lending rate at 11.75%.
Economists predict that the South African Reserve Bank will likely keep interest rates at 8.25% during its July meeting. They are hoping that any rate cuts will be postponed until the next meeting in September.
Annabel Bishop, the chief economist at Investec, is cautious about predicting a rate cut in September. She suggests a more likely cut in November or possibly in January 2025.
Bank of America (BofA) plans to reduce interest rates by 100 basis points in total. The cuts will be made gradually, with four cuts of 25 basis points each. The reductions will begin in January 2025 and will be completed by July of the same year.
This appears to be in sync with momentum, which also anticipates a 100bps reduction by the middle of 2025.
Nevertheless, Investec predicts that the reduction cycle will conclude following a 150 basis point decrease, potentially finishing by mid-2025 during the July assembly (repo rate at 6.75%).
The prediction from Investec is detailed as follows:
Interest Move Rate
May 2024 Hold 8.25%
July 2024 Hold 8.25%
September 2024 Hold 8.25%
November 2024 -25 bps 8.00%
January 2025 -50 bps 7.50%
March 2025 -25 bps 7.25%
May 2025 -25 bps 7.00%
July 2025 -25 bps 6.75%
September 2025 Hold 6.75%
The maximum forecasted increase of 150 basis points will help South African homeowners with bond repayments. It is expected to start in November.
Interest rates have stayed the same for a year, putting financial pressure on households. They have also had to deal with increases in electricity, fuel, and property rates.
In early 2024, the average property value in South Africa was R1,377,014 according to Lightstone's data.
This implies that individuals who purchased a home at this price, given the present rates, will see a monthly reduction of R1,406 on their mortgage payments at 10.25% (predicted prime by July 2025).
The higher the price of the home, the more the monthly savings on the bond repayments. The more expensive the home, the greater the monthly savings on bond repayments. For instance, if you bought a R2 million house, you will save R2,041 per month. If you bought a R5 million house, you will save R5,103 per month.
Some experts are disappointed that interest rates are not being lowered. They believe that a rate cut would benefit the property market.
Samuel Seeff, chairman of Seeff Property Group, says the economy was starting to grow when the rate was below 10%. Now, at 11.75%, it is too high and harmful to the economy and property market.
A small cut in interest rates will show that the Bank is optimistic about the economy and expects growth soon. This will have a big impact on the economy.
He further stated that there has been a substantial depreciation in the property market in South Africa.
This is concerning for the economy. The property sector has a significant impact and benefits from various transactions. These transactions include property taxes, agent commissions, attorney fees, movers, and renovators.
He further added that the upward trend in the real estate sector also acts as a stimulant for additional housing and infrastructure expansion and progress.
We haven't witnessed such a high level of optimism in a while, however, the prevailing interest rate continues to be an obstacle, preventing any significant surge in the economy and real estate sales volumes and prices.
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