R1,000 per month relief for South African homeowners

By this time next year, South Africans can expect to pay significantly less on their monthly home loan repayments, with experts projecting interest rate cuts will continue well into 2025.

Investec chief economist Annabel Bishop said South Africa’s Monetary Policy Committee (MPC) turned dovish at its last meeting in September.

This change in tone followed a sharp drop in inflation and inflation forecasts and the US Federal Reserve’s surprise 50-basis-point cut.

These positive developments saw the South African Reserve Bank (SARB) cut interest rates for the first time in years.

Prior to this cut, South Africa had been in a hiking cycle since November 2021. During this time, the MPC increased interest rates by a cumulative 475 basis points.

These hikes brought the repo rate to a 15-year high of 8.25% and the prime lending rate to 11.75%.

Rates were increased to these levels due to South Africa’s high and sticky inflation. For months, the SARB struggled to get inflation down and within its target range of 3% to 6%.

However, their efforts eventually bore fruit, with inflation now well within the target range and anchored around the midpoint of 4.5%.

This and other developments prompted the MPC to cut interest rates for the first time since 2020. At its September meeting, the committee cut rates by 25 basis points.

While this came as much-needed relief for struggling South African consumers, several experts have warned that the cutting cycle may not be as deep and long as many may have hoped, as upside risks to the inflation outlook persist.

However, Bishop said the sharp start to the US interest rate cut cycle last month and the market’s view of at least a further 50 basis point cut in the Fed fund’s rate this year lifted expectations for South Africa’s cuts.

South Africa’s Forward Rate Agreement curve factored in a further 25 basis point cut at the November MPC meeting this year. 

Bishop said this shows a steepening of the curve from early September as the US/South Africa interest rate differential has widened.

She added that the quickening in South Africa’s expected rate cut cycle was also aided by a further drop in the Reserve Bank’s inflation forecasts to 4.6% for 2024. Previously, experts predicted inflation to be 4.9% for 2024.

Inflation expectations for the next few years have also improved, with predictions now set at 4.0% for 2025, down from 4.4%, and 4.4% for 2026, down from 4.5%.

Bishop warned that while the US has seen a sharp start to its rate cut cycle, this does not mean its interest rate cut cycle will be rapid and sharp overall. The Fed recently sounded a note of caution on the pace of monetary easing. 

Fed Chair Jerome Powell, in particular, has expressed that the Federal Open Market Committee “is not a committee that feels like it is in a hurry to cut rates quickly”.

“Our economy is strong overall and has made significant progress over the past two years toward achieving our dual-mandate goals of maximum employment and stable prices,” he said.

“Labor market conditions are solid, having cooled from their previously overheated state. Inflation has eased, and my Federal Open Market Committee colleagues and I have greater confidence that it is on a sustainable path to 2%.”

Bishop said central Banks have shown support for gradualism with their interest rate cut cycles, most of which have just begun, and expectations have been curtailed for the next FOMC meeting to a 25 basis point cut.

Regardless, South Africans are expected to experience significant relief over the next few years, with many expecting 100 basis points of cuts for this cycle.

Bishop outlined Investec’s expectations for interest rate cuts until the end of 2026. This revealed that South Africans can expect significant savings on their home loan repayments over the next year.

Bishop expects the repo rate to be 7.50% and the prime lending rate to be 11% by mid-2025.

Interest rates are expected to be even lower by this time next year, in October 2025, with the repo rate at 7.25% and the prime lending rate at 10.75%.

This spells good news for South Africans with home loans, as they will see significant savings on their monthly repayments.

Daily Investor calculated, based on Bishop’s predictions, how much South African homeowners can expect to save on a standard 20-year home loan by this time next year. 

The table below shows these findings. The average savings among these house prices is R2,816.