R1,700 boost for South African homeowners expected

South Africans could save up to R1,722 on their mortgages if the South African Reserve Bank (SARB) cuts interest rates later this year.

Seeff Property Group chairman Samuel Seeff told Daily Investor that the property market is now highly anticipating interest rate cuts. 

“It has become clear that the Reserve Bank now has enough reason to cut the rate, and the Bank of England recently cutting UK interest rates signals that it is time for the interest rate to come down,” he said.

“It will no doubt have a tremendous effect on the property market. There is a lot of anticipation and positivity, with both agents and buyers keen on getting the market moving faster.”

The SARB’s Monetary Policy Committee (MPC) has hiked interest rates by a cumulative 475 basis points since the start of the current hiking cycle in November 2021.

This has brought interest rates to 15-year highs, with the repo rate at 8.25% and the prime lending rate at 11.75%.

While this has helped bring South Africa’s high, sticky inflation back within the Reserve Bank’s target range, it has also meant severe pain for South Africans paying off their home loans.

The country’s high interest rates have contributed to making the cost of living impossibly expensive for many South Africans, with homeowners particularly affected.

However, the tide seems to be turning, with many economists and industry experts expecting interest rate cuts as soon as the MPC’s next meeting in September.

Seeff explained that a rate cut will bring relief for consumers and property buyers. 

In addition to lowering the cost of debt and freeing up more from household budgets, rate cuts will also bring down the cost of homes. 

“Although the bank lending remains strong, an uptick in the market will be a further boost for the banks,” he said.

Seeff expects at least two rate cuts this year – 25 basis points in September and a further 25 basis points in November.

This is in line with many other experts’ predictions, with several warning that, while there will be cuts, interest rates are set to be higher for longer, and the cutting cycle will be shallow.

Old Mutual Wealth investment strategist Izak Odendaal recently said that the Reserve Bank could begin cutting interest rates at its next meeting.

However, he warned that it would be unable to cut rates significantly, with only a few rate cuts expected next year, as a reduction in interest rates will weaken the rand, potentially reigniting inflation.

Nevertheless, a cumulative 50 basis point cut in interest rates would bring significant relief for South African homeowners.

A 50 basis point cut – split into two 25-point cuts – would take the prime rate from 11.75% to 11.50% and then to 11.25%. The result will be a reduction in home loan repayments and savings as follows:

LoanValue	Repayment at 11.75%	25 bps cut to 11.50%	Monthly Saving	Further 25 bps cut to 11.25%	Additional Monthly Saving	Total Saving from 50bps cut
R1 million	R10,837	R10,664	R173	R10,493	R171	R344
R1.5 million	R16,256	R15,996	R260	R15,739	R257	R517
R2 million	R21,674	R21,329	R345	R20,985	R344	R688
R3 million	R32,511	R31,993	R518	R31,478	R515	R1,033
R5 million	R54,185	R53,321	R864	R52,463	R858	R1,722

“There is also the additional incentive that there is no transfer duty payable on the first R1.1 million of the price, which is an added incentive for buyers,” Seeff said.

“Our assessment is that there is a high desire for home ownership in the country, but the high interest rate and uncertainty around the economy are real dampeners for some.” 

“Bringing down the rate will be just the catalyst that hesitant buyers need.”

During this period of high interest rates, the country’s rental market saw a significant bump, as South Africans have delayed purchasing property until interest rates come down.

Seeff said South Africa will definitely see an exit of some tenants from the rental market if the rate is lower and there is improved confidence around the economy.

“That said, we ultimately would like to see the prime rate come back down to around 10% to 10.5% which would stimulate economic growth, and with that a tremendous boost for property sales,” he said.

“Until this happens, we will likely see improvement if the rate is cut by 25 bps to 50 bps this year, but it won’t shoot out the lights. For that, we will need more incentives.”