The trend of people moving out of bustling cities to quieter country towns in pu For homeowners, the rapid rise in interest rates materially increased monthly bond repayments, particularly for customers on variable-rate home loans.
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For most households the monthly home loan instalment represents the biggest monthly expense.
The generally higher inflation that leads to higher interest rates places strain on these customer’s affordability and their ability to maintain regular and timeous payments on their home loans, says Nondumiso Ncapai, the Managing Executive for Home Loans Personal & Private Banking at Absa.
She says this was particularly evident during the latter part of 2022 and 2023 when South Africa experienced an environment of increased interest rates, where more customers were defaulting on their instalments.
“The macro-economic climate has changed significantly over the last decade, shaped by varying cycles of inflation and corresponding movements in interest rates."
"For most households, monthly housing costs, whether bond repayments or rental payments, remain the single largest expense. As inflation accelerated and interest rates increased sharply during 2022 and 2023, affordability came under significant pressure, resulting in a noticeable increase in financial distress among both homeowners and tenants.”
The managing executive says that for homeowners, the rapid rise in interest rates materially increased monthly bond repayments, particularly for customers on variable-rate home loans.
She says this placed additional pressure on already constrained household budgets, with many consumers simultaneously facing higher food, transport, electricity and fuel costs. The impact was reflected in higher levels of payment stress and increased defaults across the credit market, she adds.
According to Ncapai, recent data from the National Credit Regulator (NCR) continues to show elevated consumer indebtedness, with a significant portion of credit-active South Africans remaining financially strained.
She says this environment has reduced disposable income and limited many households’ ability to absorb further increases in living costs. South Africa’s rental market has remained relatively resilient despite ongoing affordability pressures, she says.
“According to the latest PayProp Rental Index, national rental growth reached 5.6% in Q1 2025, the strongest increase since 2017, while tenant arrears remained stable at around 17%, a record-low level first seen in late 2023.”
The banking unit says MRI TPN’s Q2 2025 Residential Rental Monitor also showed improving payment performance nationally, with 83.94% of tenants in good standing for a third consecutive quarter. The Western Cape continued to lead at 88.81%, while KwaZulu-Natal remained under greater pressure at 76.59%, it adds.
These trends indicate that many tenants continue to prioritise rental payments despite broader financial strain, says Ncapai.
“However, affordability risks remain, with PayProp reporting that more than one in four rental applicants in Q1 2025 were classified as high-risk, reflecting ongoing pressure on household finances.”
The unit says their expectation is for inflation to increase because of increased fuel, energy and fertilizer prices. It says the expectation is for inflation to exceed the newly adopted target of 3% and financial markets shifted from expecting further rate cuts in 2026 to expecting a 25bp rate increase as early as May and a further 25bps increase in July.
“Although the expectation is not for interest rates to rise as quickly or to the same level as was experienced in 2023, these increases in inflation and interest rates will put some pressure on households, and is likely to dampen demand for property purchases, as some customers will adopt a wait and see approach for cost of living pressures to subside.”
However, Ncapai maintains that the biggest risk is not necessarily immediate mass default, but rather a slow erosion of affordability resilience across middle-income households, particularly those with high transport exposure, variable income, or limited emergency savings.
She adds that many homeowners and tenants are likely to move into defensive financial behaviour rather than start defaulting initially.
The rental market may experience shifts in property demand or increased tenant turnover as pressure rises on landlords to keep rentals affordable, the executive says.
She says some homeowners might even explore alternative income streams, downgrade their own discretionary spending or migrate toward areas closer to work or school.
However, the bank says it has various solutions to cater for customer distress such as restructures where the loan term is extended or instalments are reduced for a specific duration.
“Capitalising small arrears to the outstanding balance is also an option to solve for short term distress. But if wage growth continues to lag living costs, the market might see higher voluntary property sales or downscaling into smaller properties before legal action is necessary.”
Absa added that it has a Help-U-Sell proposition designed to assist customers to sell their properties in the event of long term or prolonged distress such as the scenario mentioned above.
“This enables sellers to market their homes professionally to achieve market-related prices and avoid auctions while offering potential discounts on any remaining debt (shortfall) to customers, a win-win solution.”
SA is definitely seeing affordability pressure intensify across the residential property market, both from homeowners and tenants, says Fritz Swanepoel, CEO of Leapfrog Property Group.
He says while interest rates have stabilised somewhat compared to the peak of the cycle, the bigger issue now is the cumulative increase in everyday living costs.
“Electricity, fuel, municipal charges, insurance, and food inflation are all placing sustained pressure on household disposable income.”
The property group says from a homeowner perspective, many consumers are still technically able to afford their bond repayments, but the margin for comfort has narrowed significantly. It says what they are increasingly seeing is buyers becoming far more conservative in terms of the price bracket they are willing to enter.
“In many cases, affordability is no longer determined purely by what the bank is prepared to lend, but by what households feel comfortable sustaining month to month once all living costs are considered.”
The CEO says this is also influencing buying behaviour. Consumers are prioritising smaller, more efficient homes, secure estates, properties with lower maintenance requirements and increasingly homes with alternative energy solutions that help reduce long term utility exposure.
He says on the rental side, affordability pressure is even more visible.
“Many tenants are reaching the upper limit of what they can comfortably absorb in monthly rental escalations, particularly in urban centres where transport and electricity costs are already high. As a result, we are seeing stronger demand for shared accommodation, smaller units, and multi generational living arrangements in some areas.”
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