Repo rate cut expected to stimulate housing market

The Monetary Policy Committee’s decision to reduce the repo rate by a further 25bps is extremely positive news for the residential property market, providing increased confidence and incentive for aspirant home buyers and some relief for those with existing mortgages, says Dr Andrew Golding, chief executive of the Pam Golding Property group.

With the SA Reserve Bank repo rate reducing to 7.0%, the prime lending rate drops to 10.5%.

Says Dr Golding: “As the recovery in first-time buyer demand has stalled, at least temporarily, at 46.4% of applications during H1 2025 (source: ooba Home Loans), this latest interest rate cut – together with last month’s reduction, coupled with a reduced fuel price and the still subdued consumer inflation rate, is expected to support first-time buyer demand in the months ahead as this sector of the market is extremely sensitive to interest rate cuts. Importantly, the reduced interest rate will also help boost market sentiment in general.

Furthermore, the pricing of home loans continues to grow more competitive, with the average concession relative to the prime rate improving across all regions in Q2 2025 relative to year-earlier levels (source: ooba Home Loans). The average deposit for first-time buyers also eased to 10% of purchase price in H1 2025, compared to 10.9% during H1 2024, providing further encouragement for this sector of the market.

Inflation outlook

Earlier this month (July), the Reserve Bank Governor indicated that the Bank is confident that inflation will remain within its 3%-6% target range for the next 24 months, despite uncertainty caused by ongoing US trade negotiations.

Inflation has repeatedly surprised on the downside in recent months and has remained anchored at or near the 3% lower limit of the inflation target, while the outlook remains relatively balanced, thereby creating space for the MPC to respond to the still muted levels of economic activity by cutting interest rates once more.

The weakness in the SA economy was highlighted by the recent release of the Reserve Bank’s index of leading business economic indicators, which, primarily due to the unprecedented economic uncertainty fuelled by the US trade tariffs, has now fallen back into negative territory, reflecting that the H2 2024 recovery in local economic activity has dissipated.

With price pressures remaining unexpectedly subdued and inflation expectations relatively steady, there appears to be scope for some additional easing in interest rates without triggering renewed inflation. This would ease financial pressure on households, which are benefiting from lower inflation and a series of petrol price cuts – with another likely in August.

We are already seeing a modest increase in housing market activity, albeit currently more in terms of value rather than volume. Average salary increases are expected at between 5% and 6% this year, making it the second consecutive year in which nominal salary increases have outpaced the average inflation rate. Real (inflation-adjusted) increases in salaries should provide a solid underpinning for consumer spending this year (2025).”

All comments above by Dr Andrew Golding, chief executive of the Pam Golding Property group

For further information visit www.pamgolding.co.za

Posted by The Know - Pam Golding Properties