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Interest Rate Cut – What does it mean?

Interest Rate Cut – What does it mean?

WHAT THE INTEREST RATE CUT MEANS FOR THE SA PROPERTY MARKET

The MPC announced on Thursday a lowering of the repo rate by 25 basis points. The repo rate drops to 6.25% and the prime lending rate changes to 9.75%.

The repo rate is the benchmark interest rate at which the Reserve Bank lends money to other banks. Before Thursday, the last time the bank changed the rate was in July 2019, when it was cut by 25 basis points to 6.5%

Industry leaders have welcomed the lowering of the interest rate and are convinced that this will stimulate a lagging property market. What does this mean for you and your mortgage.

This cut will provide further relief to homeowners who are battling to keep up with their monthly repayments, thereby lessening the number of homes that will enter the market and even out the scales of supply and demand which is currently weighted towards an oversupply of homes for sale.

Lower interest rates are likely to encourage consumers to take on debt, which should, in turn, increase the number of buyers looking to purchase property over this time. This should translate into corrective growth for the housing market.

Buyers will enjoy a lower interest rate on their bonds and sellers should be able to secure better offers on their homes and therefore sell timeously.

A further positive of this interest rate cut could be a more lenient approach to lending by the banks.This will enable more aspirant buyers to gain a foothold on the property ladder.

For example, on a bond of R980 000 with a 10% interest rate, the monthly repayments are around R9 457. With the repo rate going down, this reduces the minimum monthly repayment amount to R9 295, which eases the financial burden on the bond holder with a saving of R162 per month.

With consumers under enormous pressure this saving will put some money back into household budgets and boost important economic sectors such as retail and housing.

However, one must be warned that the recovery in the residential market is going to be gradual but the opportunity exists right now to get into the market .

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A . De Klerk

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