Rate cut: What it means for homeowners and investors

Last week’s 0.25% rate cut by the Reserve Bank has property experts discussing its impact on homeowners, investors, and the real estate market. 

The Monetary Policy Committee (MPC) announced last week (21 November) that interest rates will be lowered by 25 basis points. The prime lending rate therefore changes to 11.25%, and the repo rate drops to 7.75%.

READ: SARB cuts repo rate by 25bps, prime lending rate now 11.25%

Lew Geffen Sotheby’s International Realty CEO Yael Geffen says the second consecutive 25 basis-points cut to the prime lending rate is not yet enough to make a significant difference -- but is still a step in the right direction for embattled South African consumers heading into the festive season.

Geffen further commented that investors should also heed  SA Reserve Bank Governor Lesetja Kganyago’s extremely positive prediction in the MPC announcement that the Reserve Bank’s forecast sees more repo rate cuts coming in the new year, “stabilising a bit above 7%”.

“That’s substantially down from the rate of 11.25% set today, and bodes well for South Africa’s economic outlook in 2025.

“One can’t ignore the giant elephant in the room, though. One of the biggest variables to South Africa’s economic growth in the new year, is the re-election of Donald Trump as US president.

“The rand has weakened from R17.29/$ to current levels of around R18.15 since the US election earlier this month. The dollar strengthened on the back of Trump’s stated intentions of hiking import tariffs and lowering taxes, which could be challenging for South Africa’s economy because a weaker rand will fan inflation.

“It also remains to be seen what diplomatic fallout with the West will result from the International Criminal Court issuing arrest warrants today for leaders of both Israel and Hamas.”

Geffen says the good news, though, is that South Africa’s property market has already felt a slight but positive effect after September’s MPC meeting, when the country saw the first interest rate cut in years.

“As a nation we need to celebrate every victory, every milestone. It’s only with the public and private sectors working together, that we’ll see South Africa truly prosper.”

A festive season boost for consumers

Antonie Goosen, principal and founder of Meridian Realty, believes the rate cut could stimulate activity in the property market. “For sellers, the reduced interest rate might attract more buyers, particularly in early 2025 when the market traditionally picks up. This is a good time to ensure your property is market-ready and competitively priced,” he says. For buyers, the rate cut slightly improves affordability. “This small reduction can enhance purchasing power, allowing buyers to stretch their budgets when considering offers,” Goosen explains.

While the SARB’s announcement is positive news, Goosen notes the importance of keeping an eye on broader economic trends. “Governor Lesetja Kganyago has highlighted ongoing global challenges, such as a stronger dollar and restrictive monetary policies in major economies, which could influence future interest rate decisions. South Africans should remain cautious and focus on building financial resilience,” he says.

As South Africans prepare for the festive season, the rate cut serves as a reminder to balance celebration with prudent financial planning. “This small reduction offers a bit of breathing room. Whether you’re buying, selling, or simply managing your budget, this is an opportunity to make informed decisions that set the tone for a prosperous new year.”

More is needed to kickstart the economy

While this rate cut is set to inject further energy into the housing market, Samuel Seeff, chairman of the Seeff Property Group says more is needed to kickstart the economy. It desperately needs growth and a push for jobs, and lower interest rates are needed to do that.

On the back of more positivity flowing from the GNU (Government of National Unity), the lower interest rate, lower inflation, and continued absence of loadshedding, the economy and property market is poised for growth, but can do with more rate cuts. Seeff anticipates the residential property market to rerate in 2025. Where we've seen subdued or benign to no growth scenarios for many months, and years in some areas, he believes it will start turning next year in terms of higher volumes, price, and values.

Higher demand will therefore drive greater turnover in areas that have been in a slump for the last year and longer such as Gauteng, Gqeberha, Mpumalanga, Limpopo, and so on. Most of these areas sit with surplus stock, and while we anticipate higher sales volumes, Seeff says prices will only start rising once stock levels are reduced, he adds.

In contrast, we could arguably see price growth of up to 15%-20% next year in areas where there has been reasonable growth this year. These include mostly the Western Cape and other coastal regions where stock levels are depleting, and shortages are already becoming evident.

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

Based on a 20-year repayment period at the prime rate

Tyson Properties CEO, Chris Tyson, today welcomed a second interest rate cut.

Tyson says ased on the fact that most have been paying 11.5% interest on their bonds before the SARB lowered the repo rate (the rate at which it lends money to the commercial banks) to 8% in September and now 7.75% in December, this latest reduction takes a further R171 off home loans worth R1 million and R344 off R2 million bonds. Although these are small amounts, they will ultimately add up to more meaningful figures next year.

“We have been given a good indication by the South African Reserve Bank that the interest rates we have seen over the past two years are the ceiling. Always budget around the maximum interest rate and not the current interest rate. That way, if it comes down, and you do not decide to continue paying a higher amount on your bond, you have spare money to do other things,” he advises.

Although he believes that what now appears to be a downward interest rate cycle provides a much needed boost for the property market, he says it is still too soon to tell exactly what impact this will have.

“It remains a buyers’ market. 2024 has been a tough market for most areas and, in particular, the Gauteng and KwaZulu-Natal markets. This second interest rate cut, however,  bodes well for a good 2025 for the whole country as we are coming off a very low base,” he explains.

Nevertheless, Tyson recommends caution as, although this latest interest rate cuts come off an inflation rate which is now below the Reserve Bank’s 4.5% midpoint target range, a number of uncertainties remain - including hints by the central bank that it might lower its inflation range to below 3%.

This cut was well timed 

Regional Director and CEO of RE/MAX of Southern Africa, Adrian Goslett, says that this cut was well timed and is grateful for the more favourable market conditions that are likely to follow.

Goslett says 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 notes.

He also remains hopeful that market conditions will remain favourable for the time being. “There have been positive offshoots since the formation of the GNU and inflation seems to be under control for the time being – both of these factors bode well for how the property market will perform within the near future,” says Goslett.

His advice for buyers, sellers, tenants and landlords is to lean on the advice of their trusted real estate professional now more so than ever. “Timely advice from a real estate practitioner is vital when property market conditions are changing – which I predict it will be in the months to come. Gaining a real estate agent’s insights early will help clients navigate whatever conditions may come their way,” he says.   

READ: How to add value to your property 

Dr Andrew Golding, chief executive of the Pam Golding Property group. This takes the prime rate to 11.25%, a level last seen in April 2023 shared in his comments last week that, “it is not only interest rates which are having a positive impact on the housing market. Improved confidence in the wake of the formation of the GNU and easing price pressures - particularly repeated cuts in the petrol price - are all contributing to an easing in financial pressure on households, coupled with increased market sentiment, thereby reviving demand from buyers across all sectors of the market, including the luxury market.

“A series of petrol price cuts have also played a key role in dampening overall price pressures. While the November increase in fuel prices was a temporary setback, initial indications are for a major R2 per litre drop in prices in December (2024), which will reinforce the current easing in prices.

“The inflation rate is forecast to remain anchored around the Bank’s 4.5% target during the next few years, which should ensure there is sufficient scope for further interest rate relief. However, this will be very data-dependent and there are a number of potential factors which could change the outlook.

Lower interest rates make it easier for those who want to buy a new home 

Berry Everitt, CEO of the Chas Everitt International property group, says ,though lower interest rates make it easier for those who want to buy a new home to afford the monthly instalments, and to achieve the minimum income thresholds required for home loan approval, he says.

“And we feel sure this will bring about a bumper sales season this summer, especially in popular coastal areas such as Cape Town, the West Coast, the Whale Coast, the Garden Route, but also in Johannesburg, where there is still exceptional value to be had, and many existing owners are now eyeing upgrades before the additional rate cuts anticipated in 2025 push prices up too much.”

Stash rate cut savings in your bond for major benefits

Stephen Whitcombe, MD of the Firzt Realty group, notes that the latest rate drop represents a monthly repayment reduction of just R17 per R100 000 of a 20-year bond borrowed at prime, and that while this might not seem significant, it adds up to R172 a month on a R1m bond and R343 a month on a R2m bond, as Table 1 below shows.

“This comes on top of the repayment reductions brought about by the 25 percentage point interest rate cut in September and will undoubtedly make it easier for potential homebuyers to qualify for home loans and afford the monthly repayments. On a first-time-buyer home loan of R750 000 borrowed at prime, for example, the qualifying income is now around R26 200, compared to just over R27 000 in August, and the minimum monthly repayment is now R7870, compared to R8130.

“Equally important though, is the fact that these rate cuts and those predicted for next year hold out the prospect of big future benefits for existing homeowners if they decide to put all the monthly repayment savings back into their home loans now instead of spending the extra cash. All they need to do is maintain their repayments at the same level as they were in August, and the fact that inflation rate has dropped so much in the past few months (to 2,8% in October) should make it relatively easy to do this without feeling too much strain on household budgets.”

In addition, he says, anyone who gets a pay rise in January should be planning to also allocate at least some of these extra earnings to their home loan account to help bring forward the date that their bond will be paid off and save themselves many thousands of rands in the process.”

The current average salary in SA is around R26 000, and predictions are that the average increase next year will be 6%, which would translate to an increase of around R1500. Table 1 also shows what the effects would be if homeowners were to add just a third of that to their minimum monthly bond repayment, in addition to the savings from rate cuts.   

“And finally, any employees who receive a bonus or ‘13^th  cheque’ in December should consider putting at least 50% of that money into their home loan account to reduce the capital amount on which interest is charged, as this can also create a surprisingly large difference to their monthly bond repayments over time. This shown in Table 2 and can be increased by making additional one-off payments every time people receive a bonus or other additional income.”

Table 1: Potential benefits from adding to your minimum bond repayment

Table 2: Potential bond benefits from one additional repayment per year

Want all the latest property news and curated hot property listings sent directly to your inbox? Register for Property24’s Hot Properties, Lifestyle and Weekly Property Trends newsletters or follow us on Twitter, Instagram or Facebook.