How a drop in interest rates can benefit South African homeowners
An extra 0.25 percentage point drop in the interest rate will cut R300 off yourR2 million home bond.
Image: Freepik
Another cut in the interest rate saves consumers an extra R300 a month on a R2 million, 20-year, bond – on top of the R1,000 already saved in the past year.
Economists are widely expecting a cut in the interest rate when the South African Reserve Bank’s (SARB’s) Monetary Policy Committee meets next week.
Bradd Bendall, BetterBond’s national head of sales, added that the rand is strengthening and inflation is edging closer to the target at a time when another drop in the prime lending rate is possible.
October’s CPI reading published next week is forecast to have remained flat on a month-on-month basis but accelerated modestly to 3.5%, said Investec chief economist Lara Hodes.
“Additionally, the petrol price movement was negligible, while food price inflation likely remained well contained,” said Hodes.
The local currency has stabilised somewhat after reaching levels last seen in February 2023 on the back of an upbeat budget. This morning, it opened at R17.10.
Multiple rate cuts since November last year have already created a friendlier lending environment, said Bendall.
Homeowners are now spending considerably less on monthly bond repayments.
On a R2 million bond, they are paying more than R1 000 less than they did in November 2024, Bendall said.
A further cut this month to 10.25% would save an additional R300 a month on the same 20-year bond. That’s almost 17 loaves of bread more each month, IOL calculates.
“Experts appear divided about the timing of our next drop in the prime lending rate,” said Bendall.
Bendall noted that some believe there will be a cut next Thursday.
Others support a more measured approach that suggests the next cut may only be in early 2026 once inflation has stabilised.
Assumes debt taken out November 2024 and prime rate drops from 11.25% to 10.25% as expected.
Image: Grok
However, Wichard Cilliers, head of Market Risk at TreasuryONE, says there is a 90% probability of a 25-basis point cut – or 0.25 percentage points off a lending rate that is at 10.5%.
Investec economist Lara Hodes expects a similar outcome. However, she also cautioned that “the central bank may opt to leave rates on hold once again”.
Bendall has also noted improved confidence in the housing market from potential buyers.
Retail trade sales for September are expected to show growth of around 2.6% year-on-year, up from 2.3% previously, said Hodes.
“Consumers have benefitted from higher real incomes and while uncertainty around tariffs still exists, global growth concerns have eased somewhat,” she added.
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