The Monetary Policy Committee (MPC) announced today that interest rates will be lowered by 25 basis points. The prime lending rate therefore changes to 10% and the repo rate drops to 6.5%.
“With a 3.2% decline in our GDP for the first quarter of 2019 and with inflation being contained within the mid-point of the MPC’s target range, there really could not have been a more opportune time for the MPC to stimulate our economy and provide some much-needed economic relief by announcing a cut in interest rates at this meeting. We therefore commend the MPC for lowering interest rates at this time,” says Regional Director and CEO of RE/MAX of Southern Africa, Adrian Goslett.
Goslett goes on to say that this announcement is an encouraging one for the housing market. “An interest rate cut generally results in an increase in the amount of home loans granted as consumers are more willing to take on debt while interest rates are low. An interest rate cut therefore increases market activity and drives up prices – which is exactly what the property market needs at this time to rectify the real house price decline that we have experienced since last year. As things stand, Standard Bank’s House Price Index moderated to a low of 3.7% y/y in June from 4.6% y/y (previously 4.5% y/y) in May, which is well below current inflation levels,” Goslett explains.
As a takeaway from this, Goslett recommends that homeowners reinvest the money they are saving on this interest rate cut stright back into their home loan. "The saving of the cut on a R1 million bond taken over 20 years is roughly R166 p/m. If you put this amount into your monthly repayments on your home loan, you would save about R100,000 and shave off a year of your lending term," says Goslett.
Lastly, Goslett explains that there truly is no better time to enter the real estate market than right now. “The property market works in cycles. Currently, we are experiencing negative house price growth in real terms. But, in the long term, market conditions will improve to yield positive house price growth again. Buyers who purchase property now are therefore likely to see much higher returns in the long run. Consequently, I encourage South Africans to make the most of the lowered interest rate by entering the market while real house price growth is still slow,” Goslett concludes.
