Consumers and homeowners get boost after MPC cuts rates

The Monetary Policy Committee (MPC) announced on Thursday that interest rates will drop by 0.25%, bringing the repo rate to 7% and the prime lending rate to 10.5%, which property companies say is a welcome boost for consumers and homeownership.

Samuel Seeff, the chairman of the Seeff Property Group, said the rate cut is welcome news for the economy and property market.

REMAX Southern Africa said it views the announcement by the MPC as a welcome step towards reinvigorating economic activity and restoring consumer confidence.

This is the third interest rate cut this year (fifth since September last year). Seeff says it is the correct decision given that inflation (at 3% for May) is below the Bank’s target range, and the currency has been stable, trading at times below R18/USD.

Regional Director and CEO of REMAX Southern Africa, Adrian Goslett, said “This cut is likely to serve as a much-needed catalyst for transaction volumes, particularly in the affordable and mid-market sectors. The market is still price-sensitive, but this rate cut could re-energize interest in property acquisitions."

“While this 0.25% cut may seem modest, it does mark a positive step toward restoring the rate environment we saw before the pandemic. Back in January 2020, the repo rate stood at around 6.5%, and although we’re still well above that, today’s decision brings us incrementally closer. It’s an encouraging signal that the Reserve Bank may be pivoting towards a more growth-friendly stance, which could help unlock pent-up demand in the housing market,” said Goslett.

Despite broader economic challenges, the housing market has retained a degree of buoyancy. House prices have strengthened and sales volumes continue to surpass expectations, especially within the REMAX SA network. REMAX Southern Africa reports that its registered sales figures have increased by 12.5% compared to last year (as at end June), and their total units sold increased by 6.5%. 

“I remain optimistic about how this latest interest rate cut will impact the local housing market and expect to see activity strengthen further in the months to follow,” Goslett said. 

However, while this cut brings welcome relief for consumers by reducing borrowing costs and putting more money back into their pockets to spend in the economy, Seeff said it is still not enough. More needs to be done to really give the economy the rocket boost that it needs.

Nonetheless, the rate cut will make home loans more affordable and property buyers will find it slightly easier to qualify, thus opening more doors to homeownership. The total rate cuts since September means that the interest rate will now be 1.25% lower compared to last year. The repayment on a bond of R1 million (over 20-years) will therefore now be reduced by around R853 per month.

Higher demand and improved house price appreciation at around 3.7% nationally (topping inflation for the first time in two years) also provides incentive for sellers, especially since many areas are in need of more property listings.

While the rate cuts have been well received, Seeff said the economy and property market have not yet felt any notable impact from the rate cuts. The first quarter GDP growth was disappointing. After an initial surge, the overall property transaction volumes for the first half of this year are about 16% below the same time last year.

Seeff said, "Bolder rate cuts are needed. Since the interest rate (even after the latest cut) is still higher compared to January 2020 before the onset of the Covid-pandemic, we continue to urge the Bank to step up with more cuts now while inflation is contained, and the currency stable."

As a result of the 25 basis points rate cut, mortgage repayments will reduce by:

• R750 000 bond – from R7 614 to R7 488 – saving R126 (Based on a 20-year repayment period at the prime rate)
• R900 000 bond – from R9 137  to R8 985 – saving R152
• R1 000 000 bond – from R10 152  to R9 984 – saving R168
• R1 500 000 bond – from R15 228  to R14 976 – saving R252
• R2 000 000 bond – from R20 305 to R19 968 – saving R337
• R2 500 000 bond – from R25 381  to R24 960 – saving R421
• R3 000 000 bond – from R30 457  to R29 951 – saving R506
• R5 000 000 bond – from R50 761  to R49 919 – saving R842 

BUSINESS REPORT