The decision this week by the Monetary Policy Committee of the South African Reserve Bank to cut interest rates by a further 0,25% and bring the repo rate down to 6,75% and the prime lending rate to 10,25% is a welcome boost for a real estate market that is already feeling the positive effects of improved consumer and business confidence, according to Berry Everitt, CEO of the Chas Everitt International property group.
He notes that this is the sixth rate cut since September 2024, when the repo rate stood at 8,25% and the mortgage bond “base rate” at 11,75%, and that the cumulative effect of the 1,5% drop in lending rates over 14 months is very meaningful for consumers, especially since it has been combined with a significant decline in the rate of inflation.
“For existing homeowners, for example, every rate reduction translates into lower monthly instalments on all types of debt as well as their home loans, and more money in their pockets. A homeowner with a R1,6-million bond, for example, is now paying at least R1500 less per month less than they were before the rate-cutting cycle started, which represents a significant easing of pressure and a chance to significantly improve their financial position.”
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Everitt says the latest reduction also strengthens the position of prospective purchasers, especially first-time buyers, who have the most sensitivity to changes in monthly affordability. “Bond qualification in South Africa still generally follows the well-established rule that monthly repayments should not exceed 30% of a household’s gross income, so when interest rates fall and minimum monthly repayments decrease, prospective buyers can qualify for a larger loan on the same salary.
“Even better, they can choose to still buy a less expensive property and enjoy a comfortably lower monthly instalment. If they wish, they may also be able to pay more than the minimum instalment each month and derive huge future benefits by paying off their bonds in a much shorter period and saving many thousands of rands worth of interest.”
Using the current average first-time buyer purchase price of R1,6 million, Everitt explains that the drop in the prime rate from 11,75% to 10,25% substantially widens the affordability window.
“At last year’s higher rates, many aspiring buyers found that the repayments required would push them over the 30% threshold, preventing them from securing a home loan. With rates now 1,5% lower, far more households fall within the qualifying range, giving them a real opportunity to enter the property market.”
He adds that the benefits will compound further if households receive salary increases next year, even if these are relatively modest in line with declining inflation. “A higher income combined with lower interest rates is the perfect scenario for improving affordability, boosting bond applications and creating long-term financial security through property ownership.
“Consequently, we expect to see more first-time buyers entering the market, more existing owners upgrading and generally rising confidence across the residential sector in the coming months. In addition, we are highly encouraged by the drop in the unemployment rate in the past quarter, and the creation of almost 250 000 new jobs, which bodes well for the overall economy and for future increases in housing demand.”
Issued by
Chas Everitt International
For more information
Contact Berry Everitt
On +27 82 441 3601
Or visit www.chaseveritt.co.za
