Businesses and consumers may have welcomed South Africa’s recent interest rate hold, but the pain at the till is not going away anytime soon.
The South African Reserve Bank (SARB) kept interest rates on hold yesterday, 23 November, with the repo rate steady at 8.25% – in line with economist predictions.
This was despite inflation ticking up from 5.4% in September to 5.9% in October.
Stats SA said that inflated transport costs and higher food prices – following the panic buying of poultry products following the bird flu outbreak – were the main reasons for the increase in the headline figure.
Neil Roets, CEO of Debt Rescue, said that the persistent increases in food prices are forcing more consumers to take out credit to pay their monthly grocery bills.
“This is a dangerous trend and definitely not a long-term solution,” Roets warned.
He added that the steady increase in interest rates earlier this year led to a steep increase in loan instalments, resulting in more owners defaulting on vehicle and home repayments.
“Distressed house sales are on the rise in South Africa, as the majority of sellers are downgrading due to financial pressure,” he added.
Lightstone data supports this, with the number of homeowners selling their properties within two years of purchase having jumped from 2% of sales in May 2022 to 3.7% of sales a year later – primarily due to increased living costs and the larger number of homeowners in debt traps following the pandemic.
In addition, the average consumer needs to spend roughly 63% of their take-home pay to service their debt, with those earning R35,000 or more a month paying 67% of their income on debt repayments.
The latest NedFinHealth Monitor shows that 69% of South Africans cannot pay their bills on time, whilst 33% could not even pay their home loan over the last year.
Roets said that there will likely be a higher number of defaults in the coming months, including those on bank loans and credit facilities.