Johannesburg, South Africa

Indebted consumers who are feeling the pinch received some relief today as the Reserve Bank’s Monetary Policy Committee (MPC) lowered the core interest rate by 100 basis points.

This will reduce the prime interest rate from 14% to 13%. Homeowners who have seen the prices of their property decline, can console themselves with a reduction in bond repayments.

For every million rand that a bondholder owes, they will get back R720 a month, says Brian Falconer, CEO of Colliers Residential. “This is assuming a drop in the prime rate from 14% to 13%. In total, since the Reserve Bank began its cycle of interest rate cuts, bondholders have seen a return of R2 197 into their back pocket, and assuming a further rate cut in April, bondholders will have enjoyed a cut of R2 902 per million rand of bond.”

Since December last year, interest rates have been cut by a total of 2,5 percentage points.

But FNB spokesman Ilse Smuts urges borrowers to use the savings on their loan repayments. She cites an example of Mr Jones who owns a R500 000 house and decides to save his instalment savings of R366 a month, over 12 months he could accumulate R4 392 (without interest).

The latest cut will bring further much needed relief to the financially struggling household sector, says Luthando Vutula, managing executive of Absa Home Loans. The sector has had to battle with rising inflation and interest rates, a sharp slowdown in the growth of real household disposable income, the impact of the National Credit Act and the tightening of lending criteria by banks, all of which affected the affordability of housing.

FNB Property strategist John Loos says he expects the prime interest rate to fall a further two percentage points by mid-year, to a prime interest rate of 11%.

“Although stringent bank lending criteria in the form of deposit requirements are likely to be slow in being relaxed, lower interest rates do improve affordability, which is a key consideration in granting loans, and in this sense rate cuts imply relaxation of lending criteria.”

Chris de Kock, executive head of sales and marketing at WesBank, welcomes the decision by the MPC to accelerate the downward trend in interest rates.

Wesbank says the latest cut will result in a reduction of R50,70 on monthly repayments for a vehicle worth R100 000. The effect of the current interest rate reductions is likely to only spill over to the motor trade towards the end of this year, notes Wesbank.

About Colliers International

Colliers International is a global affiliation of independently owned commercial real estate firms. The organization's 10,092 employees span the world in 267 offices in 57 countries. On a worldwide basis, Colliers manages 672,945,918 square feet, and has revenue of $US 1,620,958,349.

Contact Information

Brian Falconer

brianf@colliersresidential.co.za

Tel:  +27 11 469-0423

 back to top