Prime rate freeze boosts rental market demand

The South Africa Reserve Bank held the prime rate steady at 10.5% in September.

In clarification, the Monetary Policy Committee (MPC) noted growth has held up well, and updated its forecast for the year from 0.9% to 1.2%. However, inflation expectations are also rising, in part because of higher electricity prices. Inflation was 3.3% in August – above SARB’s preferred target of 3% – and is expected to average 3.4% for the year.

The MPC’s next interest rate decision on 20 November will be its last chance for the year.

What does this mean for the housing market?

After 3 cuts in 2025, the prime rate is currently 0.75% lower than the rate at the start of the year, and 1.25% below this cycle’s peak of 11.75% in September 2024. That makes bond repayments somewhat more affordable for homebuyers: A buyer with a bond of R1 million would pay over R800 less per month than at the peak of the interest rate cycle.

Even without another interest rate cut, that should be making it easier for aspiring homeowners to leave the rental market, but the falling cost of borrowing hasn’t led to growth in property sales yet. FNB’s Property Barometer for August, released last month, showed that outstanding mortgage balances had only grown 2% year on year in July. The number of new mortgages granted has been trending downwards since March, and is below last year’s figure for the year to date.

According to new research based on the PayInc Nett Salary Index (formerly the BankServ Take-home Pay Index), affordability is a huge barrier. The share of people earning R40 000 or more per month is falling. Only 18.5% of South Africans can afford to buy a R1.3m home on their own steam (the average price of a first-time purchase, according to Betterbond’s September Property Brief).

Renting, by contrast, is more affordable. At current interest rates, a 20-year bond of R1.3m would cost R12 979 a month, while according to the Q2 2025 PayProp Rental Index, the average rent is R9 218 – almost R4 000 a month less.

Unless affordability improves, many people will remain in the rental market whether interest rates are cut or not, keeping demand for rental properties high.