R500 per month bonanza for South African homeowners on the cards 

South African homeowners can expect significant relief from looming interest rate cuts. A 50 basis point cut promises savings of R500 per month for the average home loan in South Africa.

The Reserve Bank raised interest rates sharply from the end of 2021, bringing the repo rate up to a 15-year high of 8.25%. 

This put households under immense financial strain, with repayments for a R1 million home loan rising by over R4,000 per month – a 40% increase from 2020. 

Interest rates have remained at historic highs for over a year as the Reserve Bank has been unable to enter a cutting cycle due to sticky inflation. 

However, this is set to change soon, with inflation moderating towards the midpoint of the bank’s 3% to 6% range and the US Federal Reserve potentially cutting rates next month. 

Stats SA released inflation data for July earlier this week, revealing that pricing pressures have significantly eased in South Africa. 

The inflation outcome of 4.6% was below the 4.8% median of 16 economists’ estimates in a Bloomberg survey.

The slowdown and a stronger currency, reducing the inflation outlook risks, prompted analysts to adjust their forecasts for the interest rate-cutting cycle. 

This cycle is set to begin next month, with most economists pencilling in at least a 25-basis-point cut. However, the lower-than-expected inflation figure has increased the chances of a 50-basis-point cut. 

Traders are pricing in a reduction of about 30 basis points in September, co-head of macro analysis at InTouch Capital Markets Robert Hoodless told Bloomberg, indicating that the possibility of a more significant cut has not been ruled out. 

While the Reserve Bank closely monitors local inflation data, it also closely watches the movements of the Federal Reserve, as the US is the world’s largest capital market. 

With the US economy slowing more dramatically than expected and its labour market weakening, it may also begin cutting rates more aggressively. This could possibly spur the Reserve Bank into reducing local rates more sharply. 

A 50 basis point cut will significantly ease the financial pressure on households, reducing the cost of repaying debt on home loans – freeing up disposable income to spend on goods and services. 

Standard Bank estimates a 50 basis point cut will free up R4 billion for consumers to spend, greatly boosting the local economy.

If the Reserve Bank cuts interest rates by 50 basis points next month, repayments on a R1 million home loan will come down by R344 per month. 

This benefit grows substantially for larger loans. For example, repayments on a R5 million home loan will come down by R1,722 per month. 

Below is a table outlining how much South African homeowners can expect to save on a standard 20-year home loan following a 50 basis point interest rate cut. 

Home Loan Value	Current Payment	New Payment	Savings
R 1,000,000.00	R10,837.07	R10,492.56	R344.51
R 2,000,000.00	R21,674.14	R20,985.12	R689.02
R 3,000,000.00	R32,511.21	R31,477.68	R1,033.53
R 4,000,000.00	R43,348.28	R41,970.24	R1,378.04
R 5,000,000.00	R54,185.35	R52,462.80	R1,722.55
R 6,000,000.00	R65,022.42	R62,955.36	R2,067.06
R 7,000,000.00	R75,859.49	R73,447.92	R2,411.57
R 8,000,000.00	R86,696.57	R83,940.48	R2,756.08
R 9,000,000.00	R97,533.64	R94,433.04	R3,100.59
R 10,000,000.00	R108,370.71	R104,925.60	R3,445.10