South Africa generally follows international trends and the US Federal Reserve is unlikely to cut interest rates until the end of 2024, if at all.
THE South African Reserve Bank (SARB) held the repo rate unchanged at a 15-year high of 8.25% in March this year.
It has been steady at this rate since May 2023.
The central bank is unlikely to ease its policy in May, even though it would likely put some much-needed stimulus into the lending market.
South Africa generally follows international trends.The US Federal Reserve is unlikely to cut interest rates until the end of 2024, if at all.
SARB’s harsh stance on interest rates is because this is its main weapon to battle the inflation monster that remains stubbornly high.
Many South Africans are struggling with high food and energy costs. Those with home loans have been particularly hard hit by the central bank’s actions keeping the prime lending rate at 11.75%.
Eighty20, South Africa’s leading consumer analytics and research business, recently reported on the state of home loans in South Africa.
According to the most recent census, South Africa’s population of 62 million people live in roughly 17.8 million households.
The number of households has grown significantly since the 2011 census which counted 14 million households.
In terms of type of dwelling, there are 560 000 traditional dwellings, 1.43 million informal dwellings, and 15.8 million formal dwellings.
Of the latter, fewer than 2 million of those homes have a mortgage.
For the roughly 2.4 million individuals who hold these mortgage products - many have a joint mortgage - 86% are older than 35 and 90% earn more than R10,000 per month personal income.
Despite what is a surprisingly low number of home loans relative to other loan products, they make up more than half of the total outstanding credit balance of nearly R2.4 trillion.
Home loans post Covid-19
In early 2020, in order to stimulate an economy decimated by Covid-19 and a recession, the prime rate dropped to the lowest it has ever been (7%).
This low interest rate environment created a surge in the number of home loans, with 195 000 home loans issued in 2021, up 30% from the previous decade’s average which hovered around 160 000 a year.
As inflation started to bite in 2022, ten consecutive interest rate increases over a year and a half brought the prime rate to its current 11.75%.
The high interest rate environment contributed to a drop in the number of new home loans of 5% in 2022, and by 2023 Q3 was down 27% year on year.
Total home loans as well as total home loan balances dropped from Q3 to Q4 2023.
In terms of Eighty20’s segmentation, 2020 Q4 to 2022 Q4 saw a large increase in ‘heavy hitter’ home loans per quarter during the lowest interest rate environment South Africa has seen in decades.
New home loans in the Western Cape peaked for heavy hitters at nearly 5,500 new loans in quarter three of 2021 – 73% higher than 2019 Q3.
“There might be some good news for the rest of the country, however, as economists predict we will only see some improvement in the next year as interest rates come down,” Eighty20 said.
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