What the Interest Rate Cut Means for the Property Market
Category Market Insight
What the Interest Rate Cut Means for the Property Market.
In September 2024, the South African Reserve Bank (SARB) announced a 25 basis point reduction in the interest rate. Though this may seem like a minor change, it's significant as it marks the first rate cut in four years. Whether you're looking to buy, rent, sell, or lease a property, this reduction could influence your next property decision. Here's how.
A Boost for Buyers and Sellers
For homebuyers, an interest rate cut is always welcome news. This reduction directly impacts the prime lending rate, which banks use to calculate interest on home loans. As the rate decreases, borrowing costs become more affordable, lightening the monthly mortgage burden for those seeking financing.
Currently, the prime lending rate stands at 11.5%. Economists predict that the SARB will implement another 25 basis point cut in November 2024, the final adjustment for the year. This could further lower the prime rate into 2025, enhancing affordability for buyers. Lower rates may allow buyers to qualify for larger home loans or secure more favourable terms.
Additionally, the interest payable on your bond each month will decrease, meaning you'll pay less for your home over the full loan period. For instance, with a R2 million bond, a 25 basis point cut would reduce the total loan cost over 20 years by almost R83,000.
Lower interest rates also present a chance for some buyers to pay off their home loans faster. With the 25 basis point cut, monthly bond repayments will drop by R345, from R21,674 to R21,329. If you continue to pay the original amount, you'll contribute more towards your loan's capital, saving on interest and administrative fees while shortening the repayment period by two and a half years.
For sellers, the rate cut is equally positive. A reduced interest rate boosts demand for property, as more buyers seize the opportunity to secure home loans at attractive rates. Sellers may see increased interest and viewings from motivated buyers, leading to quicker property sales and potentially more competitive offers.
A More Stable Market for Investors and Tenants
While renters may not immediately feel the impact of the interest rate cut, the overall effect on the property market is positive. Lower interest rates mean property investors and landlords face reduced costs on their mortgages, which helps stabilise rental prices. As landlords benefit from lower bond repayments, the likelihood of significant rent increases diminishes.
This is particularly good news for tenants renewing leases or searching for new rental properties, as it could lead to more favourable rental terms and a more predictable market in the short to medium term.
For landlords, the interest rate cut is also beneficial, as it reduces the cost of maintaining investment properties by lowering bond costs. This allows landlords to manage their portfolios more efficiently.
The recent 25 basis point cut in intertest presents opportunities across the board. While the immediate effects may vary depending on whether you're a buyer, sellers, tenant or an investor, the overall outlook is positive-offering a more stable environment, cheaper borrowing, and increased market activity.
At FMS Sales and Leasing, we are here to guide you through these changes and help you make the most of current market conditions. Contact us today to explore your options
Author: Zeenat Hassan