R515 saving per month for South African homeowners

South Africans can expect to save significantly on their monthly home loan repayments by early next year, as FNB expects interest rates to come down by 75 basis points.

In FNB’s latest Property Barometer for September 2024, economists Siphamandla Mkhwanazi and Koketso Mano said the bank has revised its inflation outlook downward.

They attributed this to a quicker strengthening in the rand exchange rate as domestic political uncertainty eased and global sentiment improved. 

“This adjustment has led us to anticipate an earlier interest rate-cutting cycle,” they said. 

Mkhwanazi and Mano now forecast two 25-basis-point interest rate cuts this year and another 25-basis-point cut early next year.

The Reserve Bank’s Monetary Policy Committee (MPC) will meet again in September, where many experts believe it will vote to cut rates in South Africa for the first time in years.

South Africa has been in a hiking cycle since November 2021, when the MPC started raising interest rates in an effort to tame the country’s high, sticky inflation.

The committee has raised interest rates by a cumulative 475 basis points in this cycle, bringing the repo rate to a 15-year high of 8.25% and the prime lending rate to 11.75%.

This has seen South African homeowners paying significantly more on their monthly home loan repayments.

For example, on a standard 20-year home loan for a R1 million house, the monthly repayment at an 11.75% prime lending rate has been R10,837.

If FNB’s projection holds up, this payment could be reduced to R10,322 early next year, as the prime lending rate would fall to 11%. This means savings of R515.

Monthly payments on more expensive home loans, like for a R10 million home, could see savings of over R5,000.

Below is an overview of how interest rates have increased since the start of the hiking cycle.

While a 75 basis point cut would provide much-needed relief for South African consumers, experts have warned that the cutting cycle will likely be far more short and shallow than many may hope.

Coronation economist Marie Antelme recently said the SARB is set to initiate interest rate reductions in the upcoming months. 

However, she warned this rate-cutting phase will be brief and modest, culminating in a final repo rate of 7.5% and a prime lending rate of 11%.

She explained that the Reserve Bank’s capacity to decrease interest rates is constrained by the government’s precarious financial standing and the possibility of a reduced inflation target.

While this may not bring as much relief as South Africans may have hoped for, green shoots across the economy could see relief in areas other than interest rates.

In addition to its interest rate projections, FNB increased its GDP growth forecast for South Africa. The bank expects 1% GDP growth in 2024, 1.8% for 2025, and 1.9% for 2026.

This is based on the easing of energy constraints, lower inflation, anticipated interest rate cuts, improved market sentiment, and refined assumptions regarding the impact of the two-pot pension system in South Africa.

The economists explained that these adjustments suggest a slightly more optimistic outlook for buying activity and house price growth in the coming years. 

“Improved economic activity, a more benign inflation environment, and looser monetary policy could improve affordability for potential homebuyers, stimulate demand and support house price growth,” they said.

“While we maintain our predictions for 2024 and 2025, we have revised our forecasts upward for 2026 from 3.3% to 3.6%.”

Home loan savings

Below is a table outlining how much South African homeowners can expect to save on a standard 20-year home loan following a 75 basis point interest rate cut. 

Home Loan Value	Current payment	New payment	Savings
R1,000,000	R10,837	R10,322	R515
R2,000,000	R21,674	R20,644	R1,030
R3,000,000	R32,511	R30,966	R1,545
R4,000,000	R43,348	R41,288	R2,060
R5,000,000	R54,185	R51,609	R2,576
R6,000,000	R65,022	R61,931	R3,091
R7,000,000	R75,859	R72,253	R3,606
R8,000,000	R86,697	R82,575	R4,122
R9,000,000	R97,534	R92,896	R4,638
R10,000,000	R108,371	R103,218	R5,153