Following the meeting of the Monetary Policy Committee (MPC) this week, the Reserve Bank has decided to
lower the repo rate by 25 basis points to 6,75% and the prime rate and variable mortgage rate from 10,5% to
This decision follows the steady decline in the inflation rate, which showed annualised growth of 5,1% in May, and it
has been widely welcomed by the real estate industry because of the positive effect it is expected to have on consumer
confidence and on home sales during the rest of the year.
The decision will mean lower monthly repayments, not only on home loans but also on other debts such as vehicle
finance and credit card balances. This should provide some relief to consumers by assisting them to further reduce their
debt levels, and help to lower the national household debt-to-income ratio from its current 74% level.
From a real estate point of view, relieving the financial pressure on households should also mean fewer distressed
properties coming on to the market to distort the supply and demand ratio and cause prices to drop.
It will stabilise values, which is good news for home owners, but at the same time this should be a signal to prospective
buyers not to delay their purchasing decisions, because prices are likely to start rising if there are any further interest rate
cuts later this year.
This week’s rate decrease, while small, will also mean more disposable income for many consumers, which together with
lower minimum monthly bond repayments, will make it easier for more first-time buyers to qualify for home loans.
The minimum monthly repayment on a bond of R500 000 will drop by some R80 to around R4900 and that will take the
qualifying household monthly income for such a bond from about R17 000 to around R16 400. This could make all the
difference to a home loan approval decision.
The lower home loan rate will also create more room for existing homeowners to pay off their loans sooner than they
thought. On a R1m loan, for example, using the rate reduction to effect an additional monthly payment of R160 will
reduce the loan repayment period from 20 years to 19, and generate interest savings of more than R80 000.
For some, the rate reduction may even be a signal to upgrade to more expensive properties now, or acquire one or
more investment properties before prices start to rise. It is important, though, for consumers to remain prudent in what
is still a volatile economic climate, and always leave themselves some financial leeway when calculating what they can
Even better, they should seek home loan pre-approval through a reputable originator like MortgageMax so that they
can house-hunt in the right price category – and have a much better chance of their home loan being approved. We are
currently obtaining approvals for more than 75% of all the applications we submit to the banks, while the success rate in
the open market is only around 35%.
20 July 2017.
Written by: Jors van Niekerk, CEO MortgageMax