The residential sector benefits from the new repo rate announcement

On July 19, the South African Reserve Bank decided to leave the repo rate unchanged at 6.5%. This announcement has brought much-needed relief for the housing market, especially amid the rising costs of living. 

How the repo rate affects home loan repayments

The repo rate is defined as the benchmark interest rate at which the reserve bank lends money to banks. This rate has a knock-on effect on the prime lending rate, which is used by banks to determine the interest rate on home loans.

This means that an unchanged repo rate results in an unchanged prime lending rate, and as a result home buyers are not required to fork out more money on their home loan repayments. And new home buyers can rest assured that they are entering a market where rates are not increasing. 

The current repo rate is the result of a reduction announced on March 28 when the reserve bank cut rates by 25 basis points, from 6.75% to 6.50%.

Real estate agents unanimously agree that the decision to retain the repo rate is positive news for property owners, especially those with home loans. Furthermore, it has come at an opportune time when consumers have to absorb the costs of petrol hikes and the VAT increase.

Rhys Dyer, CEO of Ooba, SA’s biggest bond originator, explained to the media that he expects the current rate to stimulate the housing sector as financial institutions now have an increased appetite to lend and the heightened affordability will see more home buyers enter the market. 

Furthermore, the reduced repo rate that was announced in March will bring about vital savings, particularly in the long-term. For example, if you have a R1mil home loan taken over a 20-year term, you will save R166 on your monthly repayments. And in a hypothetical situation, if the repo rate remains unchanged over this period, it can generate savings of up to R39 900.

On the market 

With lending rates becoming more economically feasible, the residential stock is also at an all-time high, making conditions near ideal to buy your first home. 

Perfect starter homes have come to the market in Centurion, and Dormehl Phalane Property Group has an exclusive sole mandate to list and sell these properties. Homes here are located on a secure estate known as Woodwind Estates which form part of Unit C, named Tarogato View. Each unit is 54sqm and features two tiled bedrooms, one bathroom, an open-plan granite kitchen and open plan living area, one covered carport, and one parking space. The development has easy access to the Gauteng freeway network that connects residents to Tshwane, Johannesburg, and Centurion West and East. 

These homes are selling for R755 000 and are currently on show.

South African home buyers are undoubtedly facing challenging economic times. Fortunately, the reduction in the repo rate in March and subsequent decision not to increase the rate in June can be viewed as a silver lining for the property market. It will be interesting to see how this decision will affect the sale of homes in the near future and whether or not the stagnant rate will encourage more people to take the plunge and buy their first home.