R432 savings for South African homeowners – with a warning 

While the recent cut in interest rates means that savings are on the rise for South African homeowners, experts have warned that they should remain careful.

Last week, the Reserve Bank announced a 25 basis point rate cut, which is expected to significantly affect the country’s consumers.

Homeowners, in particular, will benefit from the change, as lower monthly mortgage payments will leave them with more disposable income. 

This is according to Property24, which complied the opinions of property and financial experts on the cut, and what it means for South Africa’s property market. 

“While inflation and the economic challenges that contributed to the high interest rate are still a concern, the SARB’s decision marks a turning point for the economy,” David Jacobs, Regional Sales Manager for the Rawson Property Group, said. 

“This cut is a sign that we are finally moving in the right direction.”

The timing of the cut, right before the summer season, means that the country’s property market is likely to see a boost. 

This boost will also be driven by an influx of new homeowners, who will now qualify for financing as home loan costs decrease.

“Affordability has been a major barrier for buyers over the past few years, but this rate cut will help change that,” Jacobs said. 

“It’s likely to trigger increased activity, especially in the lower to middle price brackets, where demand has been strong but constrained by high borrowing costs.” 

“If rates continue to decline in future, which we expect they will, this trend will only gain momentum.”

Generally, experts agree that it is only the beginning, with interest rates expected to drop by as much as 2% by the end of next year.

The table below shows how much homeowners are currently expected to save on their mortgage repayments.

While this change will bring relief to South Africa’s property market, experts have also said that this cut is only marginal, and homeowners should be careful how they use this opportunity. 

Leonard Kondowe, National Manager for Rawson Finance, said that since most home loans in South Africa are prime-linked, the majority of bondholders will enjoy a 0.25% drop in their monthly repayments. 

“I strongly recommend continuing to pay the higher amounts from previous months,” he said. 

“This will help reduce the overall interest paid on the bond and create a financial buffer that can be accessed in emergencies.”

Chris Tyson, CEO of national real estate agency Tyson Properties, said that the property market, which has been a buyer market, is likely to normalise again. 

“That is what the country needs. All the indicators are there for a good run, property-wise, for the next 18 months,” he said.

He explained that if homeowners continue to repay their home loans at the pre-interest rate cut amount against a reduced monthly repayment, the period of the bond will reduce by approximately 2.5 years on a R1 million bond.

Herschel Jawitz, CEO of Jawitz Properties, explained that the recent interest rate cut will result in only a small reduction in monthly home loan payments. 

For example, a R1 million loan will decrease by around R172 per month, and a R2 million loan by about R345.

“What is important is that the rate-cutting cycle has started,” Jawitz said. “Added to this is the more than R3 per litre that petrol prices have come down by with another significant drop expected in October and the slowing of food inflation.” 

“Together, these will start to have a positive impact on disposable income and consumer confidence.” 

“We have already started to see more positivity and buyer activity in the residential market in anticipation of the interest rate cut.”