For most South African households, monthly housing costs – whether bond repayments or rental payments – represent the single largest line item in the family budget. The macro-economic climate has shifted considerably over the past decade, shaped by alternating cycles of inflation and corresponding movements in interest rates, and the cumulative effect of these shifts is now being felt acutely by both homeowners and tenants across the country.
Key Takeaways
- Affordability is eroding quietly: The biggest risk is not mass defaults but a slow financial squeeze on middle-income households already stretched across bond repayments, rent, food, fuel, and rising utility costs.
- The rental market is holding – but barely: Over 83% of tenants are in good standing nationally, yet more than one in four rental applicants in early 2025 were flagged as high-risk, placing the market on uncertain footing.
- Behaviour is shifting: Buyers and renters are downsizing, embracing shared living, choosing energy-efficient homes, and relocating closer to work – a clear sign that affordability has been fundamentally redefined.
About Arcadia Finance
Secure your loan with ease through Arcadia Finance. Pay no application fees and compare offers from 19 trusted lenders, all fully compliant with South Africa’s National Credit Regulator standards. Enjoy a fast, transparent process designed around your financial goals.
How Interest Rate Hikes Hit Homeowners Hard
As inflation accelerated and interest rates climbed sharply during 2022 and 2023, affordability came under significant strain, resulting in a noticeable rise in financial distress among property owners and renters alike, according to Nondumiso Ncapai, Managing Executive for Home Loans Personal and Private Banking at Absa.
Ncapai explains that for homeowners, the rapid escalation in interest rates led to a material increase in monthly bond repayments, most severely for those on variable-rate home loans. This added burden fell on household budgets that were already stretched thin, with consumers simultaneously contending with higher costs for food, transport, electricity, and fuel. The combined pressure manifested in elevated levels of payment stress and a measurable uptick in defaults across the broader credit market.
If you are on a variable-rate home loan, speak to your bank about the possibility of switching to a fixed rate during periods of rising interest rates. Fixed rates offer predictability and can shield you from sudden repayment spikes, though they are typically priced at a slight premium.
South Africa’s prime lending rate reached a 14-year high of 11.75% in mid-2023, following a series of consecutive hikes by the South African Reserve Bank (SARB) that began in November 2021.
The Weight of Consumer Indebtedness
Recent data from the National Credit Regulator (NCR) continues to reflect elevated levels of consumer indebtedness, with a substantial proportion of credit-active South Africans remaining under financial strain. This environment has eroded disposable income and severely limited many households’ capacity to absorb further increases in the cost of living.
Despite these pressures, South Africa’s rental market has demonstrated a degree of resilience. According to the latest PayProp Rental Index, national rental growth reached 5.6% in the first quarter of 2025 – the strongest rate of increase recorded since 2017. At the same time, tenant arrears held stable at approximately 17%, a record-low level first reached in late 2023.
Further data from MRI TPN’s Q2 2025 Residential Rental Monitor showed improving payment performance nationally, with 83.94% of tenants in good standing for a third consecutive quarter. Provincial performance, however, varied considerably:
| Province | Tenants in Good Standing (Q2 2025) |
|---|---|
| Western Cape | 88.81% |
| National Average | 83.94% |
| KwaZulu-Natal | 76.59% |
These trends suggest that many tenants continue to prioritise rental payments even in the face of broader financial strain. However, affordability risks remain very much present, with PayProp reporting that more than one in four rental applicants in the first quarter of 2025 were classified as high-risk, reflecting the persistent pressure bearing down on household finances.
What Lies Ahead – Inflation, Rates, and Property Demand
Absa’s home loans unit anticipates that inflation will rise further on the back of increased fuel, energy, and fertiliser prices. Financial markets have shifted away from expectations of additional rate cuts in 2026, now pricing in a 25 basis point rate increase as early as May, followed by a further 25 basis point hike in July.
A single 25 basis point increase on a R1.5 million home loan can add approximately R250 to R300 to a homeowner’s monthly repayment, depending on the remaining loan term.
While the anticipated increases are not expected to replicate the steep trajectory seen in 2023, they are nonetheless likely to place further pressure on households and dampen demand for property purchases. Some buyers are expected to adopt a wait-and-see approach, choosing to delay purchasing decisions until cost-of-living pressures show signs of easing.
The Silent Risk – Eroding Affordability Among Middle-Income Households
Ncapai cautions that the most significant risk is not necessarily a sudden wave of mass defaults, but rather a slow and steady erosion of affordability resilience – particularly among middle-income households. Those with high transport exposure, variable income streams, or limited emergency savings are considered most vulnerable.
Rather than defaulting outright, many homeowners and tenants are likely to shift into defensive financial behaviour. This may manifest in several ways:
- Reducing or eliminating discretionary spending
- Exploring supplementary income streams such as renting out a room or outbuilding
- Relocating to areas closer to work or school to reduce transport costs
- Moving into smaller properties or shared living arrangements
- Opting for multi-generational household setups to share living expenses
How Banks Are Responding to Borrower Distress
Absa notes that it has a range of solutions available to assist customers experiencing financial difficulty. These include:
- Loan restructuring – extending the loan term or reducing instalments for a defined period
- Capitalising small arrears – rolling short-term arrear amounts back into the outstanding loan balance to provide immediate relief
- Help-U-Sell – a dedicated proposition designed to assist customers in prolonged distress to sell their properties at market-related prices, avoiding the auction route while also offering potential discounts on any remaining debt shortfall
If you are struggling to meet your bond repayments, contact your bank proactively before missing a payment. Banks are generally more willing to offer restructuring solutions to customers who engage early rather than those who have already accumulated significant arrears.
Buyers Grow Cautious as the Margin for Comfort Narrows
Fritz Swanepoel, Chief Executive of Leapfrog Property Group, agrees that affordability pressure across the residential property market has intensified, affecting both homeowners and tenants. While interest rates have stabilised somewhat compared to the peak of the cycle, the more significant challenge is now the cumulative increase in everyday living costs. Electricity, fuel, municipal charges, insurance premiums, and food inflation are all placing sustained and compounding pressure on household disposable income.
From a homeowner’s perspective, many consumers remain technically able to service their bond repayments, but the margin of financial comfort has narrowed considerably. What has changed, according to Swanepoel, is that affordability is no longer determined solely by what a bank is prepared to lend – it is increasingly shaped by what households feel they can comfortably sustain month to month once all living costs are taken into account.
Trivia: South African banks are required by the National Credit Act to conduct an affordability assessment before approving any home loan. This includes evaluating the applicant’s gross and net income, existing debt obligations, and monthly living expenses – but critics argue the standard assessments do not always account for lifestyle inflation or future cost increases.
This shift in mindset is influencing buyer behaviour in tangible ways. Consumers are increasingly gravitating towards:
- Smaller, more efficient homes with lower maintenance requirements
- Properties within secure residential estates
- Homes equipped with alternative energy solutions such as solar panels and battery storage, which reduce long-term utility exposure
- Locations that minimise commuting distance and transport costs
Tenants Approach Their Affordability Ceiling
On the rental side of the market, affordability pressure is described as even more visible. Many tenants are approaching the upper limit of what they can comfortably absorb in monthly rental escalations, particularly in urban centres where transport and electricity costs are already elevated.
In response to these pressures, the rental market is seeing stronger demand for:
- Shared accommodation and co-living arrangements
- Smaller, more affordable residential units
- Multi-generational living arrangements in certain areas, where families pool resources under one roof
Tenants who are struggling with escalating rentals should engage their landlords before their lease renewal date. Many landlords would rather retain a reliable, long-standing tenant at a lower escalation rate than face the cost and uncertainty of finding a new one – particularly given current market conditions.
The Rental Housing Act in South Africa requires that any rental escalation clause be clearly stipulated in the written lease agreement. If no escalation clause is included, a landlord cannot legally increase the rent during the lease term without the tenant’s written consent.
The broader picture that emerges is one of a residential property market navigating a prolonged period of financial strain – one that is unlikely to resolve quickly. Whether through cautious buying, defensive budgeting, or shifts in living arrangements, South African households are actively adapting to a new and more demanding affordability landscape.
Conclusion
South African households are navigating one of the most sustained affordability squeezes in recent memory, with rising living costs, lingering debt burdens, and the prospect of further interest rate increases leaving little room for financial manoeuvre. While the property and rental markets have shown a degree of resilience, the underlying pressure on household budgets is real, broad-based, and unlikely to ease in the near term. For both homeowners and tenants, the path forward will demand careful financial planning, proactive engagement with lenders and landlords, and a willingness to adapt – because in the current climate, financial flexibility is no longer a luxury but a necessity.
Fast, uncomplicated, and trustworthy loan comparisons
At Arcadia Finance, you can compare loan offers from multiple lenders with no obligation and free of charge. Get a clear overview of your options and choose the best deal for you.
Fill out our form today to easily compare interest rates from 19 banks and find the right loan for you.
