Interest rates down again, but will it move the rental market?

The South African Reserve Bank has cut the prime rate to 10.5%, the lowest it has been since November 2022.

The move will reduce the monthly repayment on a R1 million loan by R175, making it more affordable for landlords to invest and tenants to afford their rent (or even buy homes, amid declining arrears figures).

In its July statement, the bank’s Monetary Policy Committee said it had lowered its inflation expectation since the previous meeting, allowing for interest rate cuts. Inflation was 2.8% in April and May and 3.0% in June, right at the bottom end of the targeted 3-6% range. SARB is still in talks with the government over reducing the target to a flat 3%, but the Minister of Finance has said he has no plans to do so for now.

SARB also downgraded their economic growth forecast for the year to 1%, and warned that higher US tariffs on South African goods could damage the economy. If exporters’ earnings fall, it could also result in job losses.

Will it move the rental market?

Cutting interest rates brings down debt repayments, which currently account for the biggest slice of tenant spending. According to the most recent PayProp Rental Index, the average tenant spent 46.1% of their income this way, compared to 28.8% on rent. Reducing this burden could make it easier for them to pay rent on time.

However, it remains to be seen what effect further interest rate cuts will have on tenant payment behaviour. As we revealed in the Q1 2025 PayProp Rental Index, interest rate cuts do reduce arrears, but the effect tends to lag behind interest rate decisions.  

Arrears are further already at a record low, with just 17.0% of tenants behind on their rent in Q1.  

But lower interest rates also affect what housing tenants go for. As interest rates come down, we may see demand for more expensive housing – either as owners or renters of higher-priced stock.