Interest rate cut to bring welcome relief to indebted consumers

19 Sep 2024

Consumers with debt are likely breathing a collective sigh of relief at the news that the interest rate is finally going down by 25 basis points.

The rate cut takes the repo rate to 8% which means the base home loan rate should reduce to 11.5%. Samuel Seeff, chairman of the Seeff Property Group, says he hopes this is the first of more rate cuts to follow.

The rate cut in South Africa was widely expected given that the US Fed cut its rate by 50bps and plans two further rate cuts of 25bps each. This follows recent cuts by the Bank of England, and two cuts by the European Central Bank.

“We heard this week that inflation has declined further to 4.4% which is now within the bank’s target range. The rand has continued to strengthen and dipped below R17.50 to the US dollar this morning, from a high of R19.2 in late April. The falling oil price and pending petrol price cut should bring further relief to consumers,” Seeff says.

Unaudited data from the Central Energy Fund points to a fifth consecutive decrease in fuel costs in October. According to the data, the anticipated decreases will be as follows:

Unleaded petrol (93) – R1.18 a litre

Unleaded petrol (95) – R1.26 a litre

Diesel – R1.10 a litre

“The forecast brings fuel costs down to prices last seen in March and April of 2022,” says Eleanor Mavimbela, spokesperson for the Automobile Association. She says although the fuel decreases are just one indicator, the decrease is positive and will ease pressure on both the economy and the consumer.

According to the FNB/BER Consumer Confidence Survey, consumer confidence has surged by 10 points during the past six months alone, signalling a significant recovery in consumers’ willingness and ability to spend due to a more positive outlook.

Commenting on the property market, Seeff says there is a lot of pent-up demand in the market, with estate agents, sellers and buyers all eagerly anticipating the positive impact of the rate cut.

“While no one ever rings a bell to tell you that the market has bottomed out and it is time to buy property, we certainly believe that we are potentially in one of the best markets for property buyers. Price growth has been particularly weak over the last two years, especially in markets such as Gauteng and KZN and other inland areas,” Seeff says.

Andrew Golding, chief executive of Pam Golding, says there has been a shift to cash purchases and investment acquisitions in the local residential property market during this period of relatively high interest rates.

“As interest rates begin to decline and affordability returns to the market we anticipate that first-time buyers and those requiring loans will come more to the fore,” he says.

As a result of the 25bps rate cut, mortgage repayments will reduce as follows:

Keep up payments, reduce your loan term, pay less overall interest

Toni Anderson, head of Standard Bank home services, offers a different viewpoint. Standard Bank expects three additional rate cuts of 25 basis points each – one in November and two in the first half of 2025, which could mean even bigger long-term savings. If these expected cuts reduce rates by a total of 100 basis points, homeowners could save R833 per month on a R1-million property in the next year.

“Households not facing financial strain can use this opportunity to accelerate their home loan repayments. For example, with a R1-million home loan, maintaining the same repayment amount after 100 basis points interest rate cuts could save homeowners R398,237 in interest and reduce their loan term by four years,” she says. DM

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Keep up payments, reduce your loan term, pay less overall interest