O-YES Properties | How much you can save on your home loan after lending rate cut to 50-year low

How much you can save on your home loan after lending rate cut to 50-year low

The Reserve Bank has cut the repo rate by some 50 basis points, bringing the home loan rate to 7.25% and providing South African consumers with much-needed economic relief as the country battles the impact of the Covid-19 pandemic. 

SEE: SA’s major banks on home loan approvals as Covid-19 Lockdown levels eased

Earlier in May, the repo rate was cut by 100 basis points to 4.25%, bringing the bond rate to 7.75%  Thursday's announcement was made via a video conference call on 21 May, and is the fourth major cut this year, with the recent cuts by one percentage point on 17 March after and a 1 % cut in April. 

Aside from the financial relief for households, it has created an unprecedented opportunity for buyers to take advantage of the near five-decade low borrowing costs and drastically improved affordability.

Here's what you can expect to save and pay per month on the following bond values.

Click here to calculate your own saving:

Bond value Total saving after 2.5% cut Saving per month from 22 May 2020 

Monthly payment at 7.25% - After 0.5% cut on 21 May 2020 

Monthly payment at 7.75% - After 1% cut on 14 April  
R1 000 000 R1 582 R306 R7 903 R8 209
R1 500 000 R2 371 R459 R11 855 R12 314 
R2 000 000 R3 163 R611 R15 807 R16 418
R3 000 000 R4 744 R918 R23 711 R24 628


'Vital savings to property buyers and bond holders'

Samuel Seeff, chairperson of the Seeff Property Group says he is disappointment that the Reserve Bank did not take the opportunity for a bolder rate cut of at least 100 basis points to inject vital confidence into the economy.

"The property market and economy is in a deteriorating state with GDP expected to decline by as much as 6% to 14%, well below the 2008 Global Financial Crisis when it only contracted by about 1.5%."

"These are unprecedented and uncertain times and we need as much support from the Reserve Bank as possible to boost confidence to invest in the property market and economy as we emerge from the Lockdown. Especially as inflation is expected to remain well within the 3%-6% target range."

The rate cuts this year has already provided considerable savings of over R1 400 per month on a R1 million home loan (over twenty years) and this cut now adds a further R300-plus saving.

After an exhaustive wait, sellers are beginning to negotiate and consider lower offers. While we do not know what the lending climate will look like post-Lockdown, lending conditions remain favourable for the time being.

Seeff says that there is interest from buyers. Our agents have made many successful sales under Lockdown with many more pending physical viewings but the longer the Lockdown lasts, the more the challenges are piling up for the economy and property market.

While many support structures of the market such as the deeds offices, conveyancers and the banks are becoming operational, buyers are extremely frustrated with the Level 4 restrictions. They cannot comprehend the logic of not being able to view a property and so that they can move forward with their property transactions.

Repo rate reduction further incentive for savvy home buyers

 Andrew Golding, chief executive of the Pam Golding Property group says, “With inflation still at the lower end of the 3-6% target band, it is also hoped that the current low interest rates – last experienced in the early-70s, will help bolster the economy and provide prospective home buyers and investors with an incentive to make property buying decisions. These include first-time buyers, who comprise just under half the loans extended via mortgage originator, ooba.

“Further motivation for savvy home buyers with medium to long term capital growth in mind, is the current muted house price inflation. According to ooba, average house prices remained steady at just over R1.2 million during the first four months of the year, while the average price of first-time buyers remains below R1 million, as they capitalise on accessibly priced homes which attract zero transfer duty.

Time to buy is now

“That said, the time to buy is clearly now, as the lower price band (below R1 million) continues to see house price inflation escalate, with the latest Pam Golding Residential Property index showing house prices in this price band rising by 6.9% in April (2020).

Notable among the metro markets, and according to the latest data from Lightstone, Cape Town house price inflation (4.2% in January 2020) continues to rebound, followed by Nelson Mandela Bay (3.5%) and eThekwini (3.2%) holding steady. Compared with a national average of 2.6%, this is indicative of the fact that housing markets in the coastal metros continue to outperform, but obviously these results reflect a pre-Covid world and it remains to be seen what kind of market there will be post lockdown.” 

Mike Greeff, CEO of Greeff Christie’s International Real Estate says, "Industries and consumers are under a great deal of financial pressure – especially those who have had to take salary cuts or who were retrenched. This repo rate cut will be a welcomed relief for all – especially those looking to buy property for the first time.

"COVID-19 has affected us all in various ways, but one thing remains the same – South Africans have unmatched resilience and it might be a while until things begin to recover but we will come out stronger than before." 

Article courtesy of Property24
Need more information? Fill in the form below and we will contact you!