The South African Reserve Bank's Monetary Policy Committee (MPC) has decided to keep the repurchase rate unchanged at 8.25% (prime and base home loan rate 11.75%). This was announced by the Governor of SARB, Lesetja Kganyago, at a press conference held today, 25 January 2024. This announcement provides a welcomed respite for property owners and buyers across the country.
The repo rate, or repurchase rate, is the interest rate at which the South African Reserve Bank lends money to commercial banks. It serves as a crucial tool for the central bank to control inflation and regulate economic growth. When the repo rate is increased, borrowing becomes more expensive, influencing consumers to spend less. Conversely, a decrease in the repo rate makes borrowing more affordable, stimulating economic activity.
The recent history of repo-rate hikes has been a cause for concern among property owners. Since 2021, multiple increases have taken a toll on bond payments, pushing them close to double the levels seen before the onset of the COVID-19 pandemic. Homeowners faced the daunting challenge of meeting these elevated financial obligations, impacting both current and prospective property owners.
This news is met with optimism and anticipation, echoing the sentiments expressed by economic experts at the 2023 Real Estate Industry Summit, hosted by Private Property. During a panel discussion at the summit, Trudi Makhaya, former economic advisor to President Cyril Ramaphosa, and esteemed economist, Dr. Eliphas Ndou shared insights that hinted at a more favourable future for realtors and ordinary South Africans.
Makhaya conveyed a sense of optimism by stating, "We are going to see a more benign outlook from our central bank going forward. The picture suggests there will be no more interest rate hikes, but as the governor always says, it's data dependent." She went on to emphasize that any interest rate cuts would be executed cautiously and were likely to materialise around May this year.
Regional Director and CEO of RE/MAX of Southern Africa, Adrian Goslett, says that this announcement will at least avoid placing further strain on debt holders.
“Many, including a host of first-time buyers, bought when interest rates were at their lowest back in 2020 and have had a harsh introduction to what homeownership is like. Thankfully, it seems we are entering into a period of more stability now, with this being the second announcement where interest rates have held steady,” says Goslett.
This stability is particularly crucial for those who have been on the fence about entering the real estate market or for existing homeowners who were feeling the strain of increased financial commitments.
Here's how this unchanged repo rate impacts homeowners and potential property buyers in South Africa:
1. Stability in Bond Payments:
The unchanged repo rate implies that the cost of borrowing will remain steady. For existing homeowners with variable or adjustable-rate mortgages, this translates into stable bond payments. It alleviates the burden that would have been imposed by further rate hikes.
2. Affordability for New Home Buyers:
Prospective home buyers stand to benefit from this decision, as it keeps the interest rates on new mortgages from rising further. This stability enhances affordability and encourages individuals and families to enter the property market.
The announcement of an unchanged repo rate reflects confidence in the South African economy. This positive sentiment can boost consumer confidence, fostering a healthier real estate market.
4. Relief from Previous Hikes:
Since 2021, consumers have experienced a series of interest rate hikes, significantly impacting their financial commitments. The decision to hold the repo rate steady provides a much-needed break for those who have been contending with higher bond payments.