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Monetary Relief on the Horizon for South African Homeowners with Expected Interest Rate Cuts

Published July 25, 2024
7 months ago


A glimmer of hope is emerging for South African homeowners as economists from Standard Bank anticipate the beginning of a downward shift in interest rates, potentially starting at the next Monetary Policy Committee meeting in September. After a series of aggressive rate hikes instigated in 2021 to combat rising inflation, the Reserve Bank may initiate a cutting cycle that will ease some of the fiscal strain on households across the nation.


The cumulative 475 basis-point increase imposed by the Reserve Bank elevated the repo rate to a 15-year record of 8.25%, propelling the prime lending rate to 11.75%. This spike resulted in the cost of a R1 million home to surge by R4,000 monthly, marking a staggering 40% climb and contributing to the increased financial burden on homeowners. The total mortgage debt in South Africa stands at approximately R1.2 trillion, signifying a vast economic footprint.


High interest rates coupled with persistent inflation have maintained the cost of borrowing at near record levels for over a year, severely limiting the Reserve Bank's ability to reduce rates in the interim. Nevertheless, new data points to a shift in fortunes as the bank forecasts a 25 basis-point decrease in September, with three more similar cuts projected over the forthcoming year—a forecast that would culminate in a total reduction of 1%.


Following an initial 25 basis-point reduction, homeowners could experience savings of R208 monthly or R2,500 annually on a R1 million bond. A further 50 basis-point slash anticipated in the first half of 2025 could augment these savings to R625 per month. Over time, these anticipated cuts will amount to a decrease in mortgage payments by R832 every month, providing households with much-needed breathing room.


Despite the promising outlook on interest rates, other living expenses continue to escalate. Johannesburg residents have been hit with a 12.7% hike in electricity tariffs and an increase in property rates of 3.8%. Additionally, costs for refuse, water, and sanitation have escalated beyond the inflation rate, further tightening the financial squeeze on consumers.


Thabani Ndwandwe, the Chief Risk Officer at Standard Bank SA, highlights that while the anticipated rate cut is welcome, its tangible effects on customer wallets may be delayed. With electricity prices having exceeded inflation by roughly 23% since November 2021, the challenge to manage household finances persists.


The property sector, already distressed from the rising cost of living, manifested a 9% downturn in new home loan applications in the first quarter of 2024 compared to 2023, and a 25% drop relative to the same quarter in 2022, according to Ooba Home Loans' oobarometer. Ndwandwe notes, though, that a reduction in interest rates may revitalise home loan application volumes, which saw an 8% increment since late 2023, even as the surge in municipal tariffs could dampen this rebound.


The projected cuts in the interest rate hold the potential to unleash more than R4 billion annually from mortgage repayments back into consumer pockets. Such an economic shift would alleviate some financial pressures and revitalize consumer spending power, offering a beacon of relief for South African homeowners.



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