Interest rate cut could spur first-time homeowners, but more remains to be done economically
Nicola Mawson
Although yesterday’s interest rate cut by the South African Reserve Bank (SARB) bodes well for homeowners and could encourage first-time buyers, it fell short of expectations and did not decrease monthly repayments substantially, leaving more to be done to kickstart the economy.
Taking a conservative stance, the SARB’s Monetary Policy Committee unanimously decided to cut interest rates by 25 basis points (bps) from 8.0% to 7.75%, taking the prime lending rate from 11.50% to 11.25%, a level last seen in April.
This is the second cut in a row, although below economists’ hopes that it would be trimmed by 50bps.
SARB Governor Lesetja Kganyago said the risks to the inflation outlook appeared to be balanced as it was contained in the near-term.
“However, the medium-term outlook is highly uncertain, with material upside risks,” he said.
A mortgage calculator from Absa, shows that a R1 million home would have cost R10 664 a month without a deposit assuming the applicant was granted a loan at prime. This has now come down to R10 493, a saving of only R171 a month assuming a 20-year bond.
“With improving affordability, we expect to see sustained growth in home loan applications and property purchases,” said Toni Anderson, head of Standard Bank Home Services.
Samuel Seeff, chairman of the Seeff Property Group, noted that, although the cut will be beneficial to the residential market, more was needed to kickstart the economy. Seeff anticipates the residential property market to rerate in 2025.
“While welcomed, the bank missed an opportunity to provide a more meaningful 50bps cut and a real economic boost. Especially, given that inflation dipped beyond expectation to just 2.8% from 3.8% in September, putting it below the target range of 3%-6%,” Seeff said.
Regional Director and CEO of RE/MAX of Southern Africa, Adrian Goslett, said that the cut was well timed.
“This further cut should line us up for more favourable property market conditions in the months to follow,” said Goslett.
Apart from the Western Cape, which has been largely unaffected by the high interest rates, the rest of the country has been experiencing slow property market conditions for some time now.
“These two cuts should go a long way towards stimulating activity within the property market again,” Goslett noted.
Dr Andrew Golding, CEO of the Pam Golding Property Group, also concurred that the second consecutive reduction in the interest rates will provide further impetus to activity in the housing market – particularly among first-time buyers – who had already begun responding positively to the September cut.
“There are already signs that demand from first-time homebuyers is recovering as price pressures subside and an interest rate-cutting cycle begins,” Golding said.
“Demand from first-time buyers soared in September, according to ooba Home Loans, as this sector is generally sensitive to interest rate movements and is likely to respond more positively to additional cuts.
“There are likely to be additional interest rate cuts during the course of next year, with a total of around 100bps anticipated in additional relief in 2025, including this week’s 25bps rate cut.
Chante Venter, CEO of tech start-up Wise Move, said the company, which helps people move home through a business model like that of Uber, had already seen a surge in demand for moving services, which is typical for this time of year.
“This rate cut is expected to accelerate that trend as more South Africans seize this opportunity to relocate and start new chapters in their lives,” she said.
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