Further boost for buyers as interest rate cut brings bond costs down to a four-decade low

In an unexpected move, the Reserve Bank cut a further 1% from the repo rate in mid-April. This follows the 1% rate cut in late March and 0,5% cut in January, bringing the repo rate down to 4.25% and the bond rate to 7.75%.

This has brought borrowing costs down to the lowest that it has been in close to five decades and present substantial savings of about 20% on the cost of finance and has contributed to making property more affordable.

By way of example, on a R2 million home loan, you would now save around R1 256/month and as much as R1 883/month on R3 million. At the same time, the required earnings to qualify for a home loan is now lower as well. According to Ooba, the reduced interest rate means that to qualify for a home loan of R2m you now need to earn around R55 000/month and about R85 000/month for a R3m loan.

These savings combined with the reduction in transfer duty makes a compelling case for buyers to get into the market right now. Investing now will no doubt prove to be an excellent move once the market heads back into full recovery mode.

Note for example that despite what is generally regarded as a mediocre economic performance during the 2012 to 2017 period when the market was on a growth path, the Southern Suburbs enjoyed a cumulative nominal price growth of 81,5% according to the FNB Price Index. This equates to around 16,3% growth per annum which, even when adjusted for inflation, is well above most areas.

At the same time, sellers should be ready to capitalise on the expected rise in demand for property. While we do expect buyers to take advantage of the favourable buying conditions, prices will come under increasing pressure, at least for the first few months coming out of the Lockdown period. The advice of an experienced area agent is therefore critical to ensure that you are able to make the appropriate decisions for your circumstances.

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