Effect Of Rate Cut On Bond Repayments In South Africa

The Reserve Bank decided on Wednesday to cut its repo rate by 25 basis points to 6.5% and the prime rate and home loan “base” rate from 10.25% to 10%.

This move will translate for existing homeowners into a saving of R151 a month on a 20-year loan of R912,000 – the current average approved bond size, according to Rudi Botha, CEO of bond originator, BetterBond.

This means that the minimum repayment payment of R8,952 on such a loan will now drop to R8,801. In addition, borrowers who are able to maintain payments at the current level rather than lowering them now stand to shorten their overall loan repayment period by 12 months – and save more than R73,000 on the total cost of their home.

The interest rate cuts also mean that new borrowers will now find it easier to qualify for a loan – with the gross household income requirement for a R912,000 loan dropping from R30,000 a month to R29,000 a month, Botha said.

In the first-time buyer sector, where the BetterBond statistics show that the average approved bond size is currently R715,000, the average monthly bond repayment will drop from R7,018 to R6,899, and the monthly household income required to qualify will decline from R24,000 to R23,000.

This relief, coming in the wake of a significant drop in the inflation rate to 4% last month and the Moody’s decision to keep SA’s investment rating out of the “junk” zone, is bound to buoy consumer confidence, and will mitigate the effects of the VAT increase and the fuel tax increases which are scheduled to take place next week.

In addition, the Treasury recently announced that the economy is growing at a faster rate than expected, which spells an increase in employment this year. 

According to Rudie Botha, Betterbond is consequently expecting a significant increase in home sales over the next 12 to 18 months, and recovery in price growth as the current oversupply is absorbed.

The BetterBond statistics represent 25% of all residential bonds being registered in the Deeds Office and are thus a reliable indicator of the state of South Africa’s residential property market.