Repo Revolution: A Clearer era for Home Loans

• Shifting from prime to repo makes bank margins visible and easier to compare.
• The built-in 3.5% prime markup falls away, improving pricing transparency.
• Repo cuts will flow more directly and clearly into homeowners’ repayments.

Prime vs Repo: What’s changing and why it matters

For decades, South African home loans have been priced off the Prime Lending Rate (PLR). Prime, however, has always been a derivative rate, set at a fixed margin above the South African Reserve Bank’s repo rate.

Now, the proposed move to the SARB policy rate, the repo rate, as the universal benchmark signals a structural shift in how interest is communicated and understood.

The repo rate is the actual rate at which the Reserve Bank lends money to commercial banks. Prime has historically been repo plus 3.5%. Under the new approach, banks would price loans directly off repo, removing the layered reference system.

According to Stephan Potgieter, CEO of BetterBond, the change represents a step forward for clarity in the lending market.

‍

“The proposed move away from the prime lending rate and towards the repo rate as the reference point for loan pricing is a positive development that will simplify pricing and improve transparency,” says Potgieter.

‍

It does not automatically make borrowing cheaper, but it does make pricing easier to understand.

The 350 basis point margin explained

‍Under the current system:

• Repo rate is 6.75%
• Prime rate is 10.25% (Repo plus 3.5%)
• “Prime minus 1%” = 9.25%

In reality, that “prime minus 1%” is repo +plus 2.5%.

The 350 basis point (3.5%) margin has always been embedded inside prime. Borrowers often focus on the “minus” without fully appreciating the base calculation.

Under the proposed reform, banks would quote directly from repo. For example: “Repo + 2.5%”

That makes the bank’s actual margin transparent. No hidden reference layer. No confusion.

As Potgieter notes, the reform effectively removes the embedded reference margin and requires banks to be explicit about what they are charging above repo.

Transparency and competition

‍This is where the real impact lies. With repo as the single reference point, consumers can compare offers across banks far more easily. Margins become visible. Pricing becomes comparable.

Greater transparency typically drives stronger competition. When margins are clearer, banks must compete more directly on pricing rather than relying on a benchmark many borrowers don’t fully interrogate.

It also strengthens the role of bond originators, who can negotiate more effectively when margins are transparent.

What happens to existing home loans?

‍Importantly, existing loans will not suddenly become cheaper or more expensive, purely because of the structural change. Contracts will be converted mathematically.

‍If prime is 10.25% and repo is 6.75%, the equivalent conversion becomes repo + 3.5%. Your effective rate and monthly repayment remain unchanged.

The reform changes the reference framework, not your agreed cost of borrowing.

New contracts, however, will be structured directly off repo.

Repo Cuts: Faster impact

Perhaps the most meaningful shift is how repo changes will now translate.

Under the old structure, the Monetary Policy Committee would adjust repo, and prime would then be adjusted accordingly. While mechanically aligned, the system added a conceptual step.

Under a repo-linked structure, if repo drops from 6.75% to 6.25%, that new rate immediately becomes the base reference. Adjustments feel more direct and visible.

In Potgieter’s view, this “strips away the middleman” and allows rate cuts to flow more transparently into homeowners’ pockets.

Fixed vs Variable: What to consider

‍Variable-rate loans will now track repo changes more directly. If rates fall, repayments adjust downward automatically. If rates rise, repayments increase just as directly.

Borrowers who value flexibility and anticipate rate cuts may prefer variable.

Those prioritising certainty may still opt for fixed rates, typically locked in for up to five years, particularly in uncertain global environments.

The reform does not eliminate the fixed-versus-variable decision. It simply clarifies the benchmark underpinning it.

The Long-term view

This move aligns South Africa more closely with global best practice, where central bank policy rates serve as clearer reference points.

It also lands at a time when investor sentiment is improving, supported by structural reform momentum and enhanced financial credibility.

Greater transparency in lending markets is not just cosmetic, it strengthens financial efficiency, enhances competition and builds long-term trust.

‍

As Potgieter emphasises, the reform “sends a strong message about the country’s commitment to financial efficiency and transparency.”

‍

For homeowners and investors alike, that clarity matters.

This is not about cheaper money overnight. It’s about cleaner pricing, sharper competition and a more transparent future for property finance in South Africa.

‍