The bank that controls money in South Africa (known as the South African Reserve Bank or SARB) is likely to reduce interest rates by up to 150 points by the middle of 2025. This could mean that people who own homes and are paying off a loan (a bond) could save R1,406 every month.
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South Africa’s R1,400 Monthly Relief for Homeowners
In May, the group at SARB that decides on money matters chose to keep the rates the same. This means the repo rate stayed at 8.25% and the prime lending rate at 11.75%.
What Might Happen Next
People who study the economy think that SARB will keep the rates at 8.25% at their meeting in July. But they hope that the decision to reduce interest rates will be delayed until the next meeting in September.
Annabel Bishop, the main economist at Investec, is also careful about predicting a rate cut in September. She suggests a smaller cut in November or maybe even in January 2025.
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Predictions for the Year 2025
The Bank of America (BofA) is predicting that there will be cuts of 25 points each starting from January 2025. They expect a total cut of 100 points in January, March, May, and July. This is the same as what Momentum expects – a cut of 100 points by the middle of 2025.
Despite this, Investec predicts that the cycle of cuts will stop after a drop of 150 points. This could happen around the middle of 2025 at the July meeting (with the repo rate at 6.75%).
How This Affects Homeowners
This maximum prediction of a 150-point cut will bring much-needed relief for South African homeowners making bond repayments. It’s expected to start as soon as November.
Interest rates have been kept the same since the last decision on policy rates a year ago. This has kept the financial pressure on households that have also had to deal with increases in other areas, like electricity, fuel, and property rates.
Property Value and Savings
According to data from Lightstone for the first quarter of 2024, the average value of a property in South Africa was R1,377,014.
This means that people who bought a house at this price at the current rates will pay R1,406 less every month on their bond repayments at a rate of 10.25% (which is the predicted prime by July 2025).
However, this amount increases with the price of the home. For example, those who bought a house for R2 million will pay R2,041 less every month. And those who bought a house for R5 million will pay a significant R5,103 less every month.
Expert Opinions
Several property specialists have expressed their dissatisfaction with the decision to maintain the current interest rates, stating that a reduction is necessary for the property market.
Samuel Seeff, the head of the Seeff Property Group, pointed out that the economy was beginning to recover when the rate was less than 10%. However, the current rate of 11.75% is excessively high and negatively impacts the economy and the property market.
He mentioned that a minor reduction of 25 points could convey a powerful message of the Bank’s confidence in the economy. This could indicate the approach of a period of growth, which would have a significant impact.
He also noted that there has been a substantial decrease in the property market value in South Africa.
This is a cause for concern for the economy since the property sector significantly influences other sectors. It benefits from real estate transactions, including property taxes, agent commissions, legal fees, moving services, renovation works, etc.
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