R832 a month relief for South African homeowners expected

Relief is coming for South African homeowners, with economists predicting the Reserve Bank’s cutting cycle will begin at the next Monetary Policy Committee meeting in September. 

As interest rates come down, the repayments on South Africa’s R1.2 trillion worth of mortgages will come down, freeing up billions in disposable income. 

The Reserve Bank aggressively hiked interest rates in response to rising inflation towards the end of 2021. 

It raised rates by a cumulative 475 basis points, bringing the repo rate to a 15-year high of 8.25% and the prime lending rate to 11.75%. 

This put immense financial pressure on South African households, with the repayments for a R1 million home rising by R4,000 per month – a 40% increase. 

Interest rates have remained at near historic highs for over a year, and sticky inflation has prevented the Reserve Bank from cutting rates. 

However, this appears to be changing, with Standard Bank’s economic research indicating the SARB will begin its cutting cycle in September. 

Standard Bank forecasts a 25 basis points cut in September, followed by three more 25bps cuts over the next 12 months. 

Thus, interest rates are expected to to come down by 1% in the next year, providing some relief to homeowners and consumers. 

The bank said that after a 25-basis points rate cut, homeowners can expect to save R208 per month or R2,500 per year on their repayments for a bond worth R1 million. 

If the rate cuts expected in the first half of 2025 shave off another 50-basis points, homeowners could pay R625 less per month for a R1 million property in a year. 

Overall, after a 100 basis points reduction in interest rates, homeowners will pay R832 less per month on their mortgages. 

Not all good news

The relief will go a long way in softening the blow caused by the increase in monthly property servicing costs, such as rates and taxes.

In Johannesburg, electricity tariffs increased by 12.7% on 1 July, while property rates increased by 3.8%. 

Standard Bank said tariffs for refuse collection, water, and sanitation have also increased at a pace that has outstripped inflation.

While the rate cut, the first since the outbreak of the pandemic, will reduce monthly mortgage commitments, higher administrative and home servicing costs, such as rates and taxes, will keep South Africans under pressure.

“Despite rates predicted to edge lower, benefits to customers might take a bit longer to filter through,” Thabani Ndwandwe, chief risk officer at Standard Bank SA, said.  

“Since November 2021, the price of electricity has increased by an average of almost 30%, or 23% above inflation. This added more pressure on households struggling to balance household finances.”

In addition to these increases, the City of Johannesburg’s prepaid electricity customers will receive an additional R200 fixed monthly charge.

Even before these increases, South Africa’s property sector was reeling from the increased cost of living. 

Ooba Home Loans’ latest oobarometer showed that the number of new home loan applications in the first quarter of 2024 was 9% lower than in the first quarter of 2023 and 25% behind the same period in 2022.

“A reduction in interest rate should lead to a recovery of home loan application volumes, which had already started rowing by 8% since the last quarter of 2023. However, this growth will likely be muted by municipal tariff hikes,” said Ndwandwe.

There is R1.2 trillion mortgages in South Africa and a 50-basis points reduction will free up over R4 billion currently going towards instalments per annum. That’s a R4 billion benefit for consumers.