What the rate cut means for current and prospective home-owners

The SA Reserve Bank has today cut the repo rate by 1% to 4,25%, bringing the total drop since January to 2,25%.

In the wake of this, the prime rate - and the base rate for home loans - will also drop by 1%, to 7,75%, which is the lowest level in more than 25 years.

For investors and home-owners with existing mortgage loans, the rate cuts will mean a drop of around R62,80 for every R100 000 outstanding on the loan. This means that for those with a bond of R1m, for example, the monthly repayments will drop by R628 from tomorrow.

Combined with the lower repayments on all forms of credit, including car finance, personal loans and creditcard balances, this will bring significant relief to many households currently in financial distress due to the COVID-19 lockdown.

For those planning to buy a home, the drop in the rates will now make it easier to qualify for a home loan, because the household disposable income required will be less. It will obviously also make it easier for new owners to afford their monthly home loan repayments.

The move is thus highly positive for the real estate market as it will help many existing homeowners to keep their properties while also encouraging more first-time buyers.