The South African Reserve Bank (SARB) has announced a 25 basis points reduction in the repo rate, lowering it to 7.75%.  This latest rate cut moves the prime lending rate down to 11.25%.

This news marks the second and final rate cut for 2024 and is expected to further bolster homebuying activity following subdued demand in the ‘higher for longer’ interest rate environment. 

Rhys Dyer, CEO of the ooba Group welcomed the news of another rate cut. "The financial relief from this month’s announcement, together with September’s rate cut, will be felt by homeowners and prospective homebuyers across the country."

The rate cut was underscored by a positive outlook for inflation, with consumer inflation easing to 3.8% and producer inflation dropping to 1.0% in September. “And despite a minor increase in the petrol price earlier this month, the overall economic outlook remains relatively upbeat,” says Dyer.

Dyer speculates that while the recent US election results may have created uncertainty around future economic policy, more clarity will emerge once the new administration takes office. “On one hand, tax cuts and deregulation may drive growth but on the other, potential tariff hikes and immigration limits could increase inflation, restricting future interest rate cuts by the US Federal Reserve.”

Regardless of the outcome, Dyer believes that it is likely that the SARB will take a more cautious approach to the timing and extent of future interest rate cuts. “We do however hope that these considerations will not hinder the progress being made in the homebuying sector, and that rate cuts will continue into 2025 as initially projected.”

Homebuying Market’s Early Response to Rate Cuts 

As reflected in its October ’24 figures, Dyer shares that ooba Home Loans has already seen a positive response to the rate cut implemented in September.

"October marked the first significant shift in consumer demand for property, with home loan applications rising 16% compared to October 2023 and 27% on the previous month. This demonstrates the impact of even a single 25-basis-point interest rate reduction."

Now totaling 50 basis points, the rate cuts in 2024 alone equate to monthly savings of R344 on a R1 million home loan, totaling savings of R82,683 over a 20-year home loan period.

"These savings are sure to stimulate home buying activity - especially among the prized first-time buyer segment - which is anticipated to drive the market’s recovery,” says Dyer pointing to a healthy increase in first-time homebuyers in September of almost half of total applicants - almost rising above the 50% mark for the first time since Q4 ’22. 

The resilient nature of the country’s major banks, reflected in sustained competitive lending, is also paving the way to accelerated recovery. “Our Q3 ’24 data showed healthy increases in the average approved bond size (up by 6.3% on Q3 ’23) and loan to value ratios,” says Dyer. 

“We also achieved an average weighted interest rate concession of prime less 0.55% last quarter - 11 basis points cheaper than Q3 ’23 - a clear indicator of the importance of using a comparison service like ooba to secure the best possible deal on a home loan.”

Putting Savings to Good Use: Top Tips for Paying off Your Home Loan Faster

“We strongly advise that where possible, existing homeowners use the added savings to increase their home loan repayments,” says Dyer. 

He shares his top four tips for paying off one’s bond sooner as follows:

1. Allocate Extra Cash 

Shift funds from savings or fixed deposits to your bond to reduce interest and shorten your loan term. In emergencies, you can usually access these funds if needed.

2. Put Extra Money Into Your Monthly Bond Repayment

Add a consistent extra amount to your bond payment each month to save on interest. “Whether it’s R100 or R2,000, allocating extra money can significantly reduce your loan repayment term.”

3. Apply Raises and Bonuses to Your Bond

“Direct a portion of any raises or bonuses toward your bond without increasing expenses,” says Dyer. “If you allocate 15% of your income to your bond, do the same with each raise.”

4. Use Lump Sums or Windfalls to Reduce Your Bond

Apply one-off cash, such as tax refunds or inheritance, directly to your bond. “For example, a R30,000 lump sum on a R1 million bond at 11.5% will save you R233,464 in interest and help to reduce your bond repayment term to 17.94 years.”

Looking ahead to 2025, Dyer strongly believes that despite international uncertainty following the US elections, South Africa is still well on its way to enjoying several more rate cuts. “We remain optimistic and anticipate further rate cuts early in 2025, driven by an improved local outlook” he concludes.