Rate cut widely welcomed at year-end, good news for housing market

Johannesburg - South Africa's housing market is poised for a much-needed recovery following the latest interest rate cut by the South African Reserve Bank. On Thursday, the central bank reduced the interest rate by 25 basis points, bringing the prime lending rate down to 11.25%.

This follows a 25-basis-point cut in September — the first-rate reduction in four years. With the latest move, interest rates have now dropped by a total of 50 basis points over the past two months. The rate cut was widely anticipated, with economists forecasting an additional 50-basis-point reduction in the first half of 2025.

The September rate cut sparked positive sentiment, with data from Standard Bank indicating an uptick in home loan applications and new home loan approvals.

"The increase in home loan activity is largely due to improved economic conditions and lower inflation, but affordability remains a challenge for many," says Toni Anderson, Head of Standard Bank Home Services. "We're hopeful that the further rate cuts expected next year will have a positive impact on household incomes."

As interest rates continue to fall, homeownership will become more accessible due to lower monthly repayments. Not only does this benefit existing homeowners who are managing their repayments, but it also opens the door for more first-time buyers who have been waiting for the right time to enter the market.

"With improving affordability, we expect to see sustained growth in home loan applications and property purchases," adds Anderson. "We're excited to support more aspiring homeowners, especially first-time buyers. At Standard Bank, we're now able to offer first-time buyers up to 108% of the loan amount."

FNB CEO Harry Kellan says, “We welcome the Reserve Bank’s decision to further ease monetary policy and cut the interest rate, as this will lift consumer and business confidence.  This continued positive outlook for the economy is supported by the Reserve Bank’s forecasted decline in interest rates next year, which will reduce the cost of borrowing and further stimulating economic growth.”

“Year-end is typically a period of increased spending and some of this spending is funded by loans or credit card facilities. However, volatility in the rand exchange rate and higher bond yields in many developed economies in recent weeks may result in fewer rate cuts next year. While it is too early to speculate on the impact of new US policies on South Africa, we can potentially expect some significant changes early next year,” adds Kellan.

“As such we would urge customers with debt, home loans in particular, to consider maintaining their payments at present levels rather than reducing the payment in line with lower interest rates if their budget allows. The saving on interest costs over the term of the home loan will be significant.”

FNB Chief Economist Mamello Matikinca-Ngwenya says, “Today’s MPC decision is in line with market expectations. While we continue to anticipate additional 25bp cuts at each meeting until May 2025, there are several challenges that monetary policy is confronting. The United States Fed has signalled a slower-paced interest rate cutting cycle which will place pressure on emerging markets such as South Africa.

"Furthermore, trade restrictions and looser fiscal policy remain pertinent risks to the outlook on global inflation and financial conditions. Given the forward-looking nature of inflation-targeting, these factors should contribute to the MPC’s assessment of the necessary restrictiveness of monetary policy. To mitigate these pressures, robust reform implementation as well as sufficient monetary and fiscal buffers should remain top priority for SA.”