One thing saving South African homeowners more money than interest rate cuts

Experts urged South African homeowners to negotiate lower bond rates, as this can save them far more over time than interest rate cuts.

According to Phoenix Bonds director, Hannah Van Deventer, negotiating a bond rate down by 2% will save homeowners a lot more money in the long run than a 0.25% rate cut or a lower inflation target.

“The best thing homebuyers can do to save money is to negotiate their bond rates,” she said. “On one of the bonds we handled this month, we negotiated a 2.64% rate reduction for the buyer – from their own bank’s initial offer.”

“While the interest rate cycle is outside consumers’ control, their home loan rate is not – banks can always go lower, and the first rate they offer is almost never the final word.”

Van Deventer said the focus is now on getting bond rate discounts of between 1% and 2.5% lower than the banks initially offer.

This will provide a far bigger saving than the most recent 0.25% interest rate cut by South Africa’s Monetary Policy Committee (MPC).

“This is a critical insight that many people overlook: a 0.25% MPC interest cut saves a fraction of what a negotiated 2% rate reduction on a bond can achieve.”

Over a 20-year period, Van Deventer explained that savings can be worth hundreds of thousands of rands, especially for higher-value bonds.

Despite six rate reductions in the past 18 months, she pointed out that homeowners still aren’t feeling meaningful financial relief. This is because the real prime rate, after adjusting for inflation, remains high at 6.65%.

“For context, during South Africa’s strongest property cycle in the mid-2000s, the real prime rate sat closer to 2%–3%, less than half of where it is today.”

“This high real-rate environment continues to hamper affordability and credit growth, even when the economic outlook for the market is strong.”

Lower inflation targets don’t guarantee cheaper borrowing

Some people are calling the Reserve Bank’s recent downward shift of the inflation rate – from 4,4% to 3% – one of the country’s biggest monetary policy shifts in decades.

However, Van Deventer expressed concerned that this has the potential to keep higher interest rates for longer. “South Africa’s inflation rate is driven by ‘global side shocks’ like oil price and shipping rate volatility.

“So while a lower inflation target signals longer-term stability, the question is if the MPC is targeting the correct inflation drivers.”

Leading South African economist Dr Roelof Botha also expressed concern about how South Africa’s interest rates will affect the property market.

“When inflation is imported into the country through oil, freight, or supply bottlenecks, raising the interest rate depresses domestic demand but has no effect on the actual cause of inflation,” he said.

“With a stricter inflation target, the MPC may maintain higher interest rates for longer, especially if inflation remains driven by imported or supply-side factors.”

According to Botha, this could result in longer-than-expected high borrowing costs, cautious lending behaviour from banks, and a slower recovery in the property sector.

“Keeping rates higher for longer because of a target that ignores supply-driven inflation risks adding unnecessary pressure to households and constraining economic growth.”

Although banks can lower bond rates, Van Deventer said they won’t do this unless pushed to do so. “If you have a clean credit record, you’ll be in a stronger negotiating position.”

Following the latest interest rate cut, she explained that Phoenix Bonds is expecting to see a surge of homebuying activity.

“There are thousands of homebuyers out there who ,after getting prequalified and improving their credit profile, stood back and waited in the wings for a cut, no matter how moderate. Sentiment is now visibly improving.”

In the meantime, Van Deventer encouraged prospective homebuyers not to wait passively for another interest rate cut.

“The biggest savings often come from negotiation, not policy. And for South Africans trying to enter or move up the property ladder, that difference can be life-changing.”