This is how much you will save on your bond after huge 100BP rate cut

The repo rate has been cut by 100 basis points, will see a short-term reprieve for consumers as SA locks down the during Coronvirus national disaster - but experts warn to against the risk of bad debt. 

The Reserve Bank’s Monetary Policy Committee cut the repo rate to 5.25% (from 6.25%) reducing the mortgage rate to 8.75% (from 9.75%) on Wednesday, 19 March. 

Here's what you can expect to save and pay per month on the following bond values. Click here to calculate your saving

This decision is welcomedstimulus for the economy and property market, says Samuel Seeff, chairman of the Seeff Property Group.

This cut will help when the recovery starts, he further.

It takes the interest rate down to levels last seen in the 2012/3 period and is at one of the lowest levels in decades. It is in keeping with global developments given that the world economy is now in recession and potentially facing a similar situation to the 2008 Global Financial Crisis.

Central banks across the world have responded with aggressive rate cuts and the US Fed has just provided a second emergency cut bringing rates down to near-zero and launching an aggressive economic stimulus package.

Given that SA does not have the reserves to match any such stimulus and is fiscally under massive pressure, it is necessary for the Reserve Bank to come to the aid of the economy and provide assistance to South Africans.

'Wait and see as crisis takes effect' 

This cut will provide much needed relief for households and small businesses and aid those with debt and home loans. It will provide a vital boost for the property market. Contrary to expectation, the market has been active this year and people have continued buying, but, he says, we will need to wait and see what effect the crisis will have.

This year has seen more commitment from buyers looking to take advantage of what is the best buyer’s market in a decade while sellers who had been holding out are now showing some urgency. The rate cut will provide additional stimulus for buyers who might still be sitting on the fence to take advantage of the favourable buying conditions.

In addition to the affordability boost, the savings puts extra money into buyer’s pockets which can assist with transfer duty and costs which will result in more transfer duty revenue for government and increased economic activity, he concludes.

'Don't take on new debt' 

Regional Director and CEO of RE/MAX of Southern Africa, Adrian Goslett says as much as this announcement will provide further relief to homeowners who are battling to keep up with their monthly repayments, Goslett predicts that this drop in interest rates is unlikely to have any major effects on the current housing market apart from lessening the number of homes that will enter the market as a result of the bank’s distressed property sales programmes.

“Lower interest rates usually incentivise consumers to take on new debt. However, given our current economic outlook, it would be wiser for consumers to use this break to keep up with the repayments on their existing debts. When an economy shrinks, debt becomes increasingly expensive, along with all other consumable goods and services. Despite the interest rate cut, consumers should, therefore, think carefully before taking on any bad debt during this time,” says Goslett.

"Credit card debt is an example of bad debt that will continue to eat into your disposable income and can have devastating long-term effects if not managed correctly.

“Property investments, on the other hand, are a form of good debt that will generate high returns in the long run. The interest paid on this kind of debt therefore justifies the expense. Rather than taking on bad debts, homeowners can take advantage of the interest rate cut by redirecting the money they’re saving straight back into their home loan. This will save them on interest charges and reduce their home loan period by months or even years,” Goslett concludes.

'Timeous reduction in the repo rate'

It is a critical step towards financial survival, as consumers and our economy navigate unchartered territory and unexpected new challenges as a result of the onset of the Coronavirus, says Dr Andrew Golding, chief executive of the Pam Golding Property group.

“The ensuing reduction in the interest rate, coupled with next month’s (April) likely substantial drop in the fuel price as a result of the dramatic reduction in global oil prices - despite the additional 25c a litre tariff increase as announced in the recent National Budget, affords some relief to South African consumers and hopefully part of the boost our economy needs right now.

“Given the extreme volatility currently being experienced in global stock markets, it is probable that, as has been seen over decades in times of great turmoil, we will see increased confidence in bricks and mortar among investors and home buyers.

“As property has over the longer term proven a sound investment, it stands to reason that many will regard the residential property market as a safe haven amid the heightened economic uncertainty caused by a global pandemic.”

'House price inflation stabilising' 

Looking at the recent past, according to the Pam Golding Residential Property Index, while national house price inflation continues to slow – to 1.95% in February 2020, house price inflation in Gauteng appears to be stabilising at 1.91% while both the Western Cape and KwaZulu-Natal housing markets continue to rebound at 5.36% and 3.12% respectively.

Positively, says Dr Golding, and on the back of the adjustment in the transfer duty threshold for zero payable on homes up to R1 million, the percentage of home loans extended via ooba to first-time buyers rose to 52% in February (2020), the fourth consecutive month this has exceeded 50%.

“Furthermore, 60% of all applications received by ooba are from buyers with no deposit, with four out of five buyers successful in their bid to secure a 100% bond. On average, mortgages facilitated by ooba accounted for 89.6% of loan value in February, the highest percentage on record (since 2007). In addition, loans extended for holiday homes recovered further last month (0.3%), while mortgages for investment properties rebounded to 7% of all mortgages facilitated by ooba from a weak January 2020.

The Reserve Bank will undoubtedly continue to closely monitor developments in the local economy, and will presumably stand ready to cut interest rates further should the need arise, adds Dr Golding.

“Naturally, at this difficult time we are prioritising the safeguarding of the health and safety of our employees, agents and clients, taking every measure to mitigate personal risk while ensuring the continuity of our business operations and continuing to provide real estate services to buyers and sellers wishing to transact.”