South African Homeowners Face New Financial Pressures

The country’s homeowners are struggling to make ends meet, with many unable to afford their monthly mortgage repayments. The culprit? A perfect storm of rising interest rates, financial Pressures and a soaring cost of living.

Since November 2021, interest rates have risen by 475 basis points to a 15-year high, making it increasingly difficult for homeowners to finance their properties. For instance, the monthly repayments on a R1.5 million house have increased by R4,600 since rate cuts began.

Another trend that’s emerged is that many homeowners bought houses they couldn’t afford during the pandemic, when interest rates were low. This has led to a surge in debt-relief programs, with Africa’s most valuable banking group, FirstRand, reporting a significant increase in non-performing loans related to residential mortgages.

FirstRand’s CFO, Markos Davias, revealed that the company’s mortgage division saw its credit loss ratio rise above its target range, with non-performing loans increasing by 29% compared to the previous year. This was the company’s worst-performing division in this regard.

The Prudential Authority’s data shows that defaults on home loans have risen 36% year-on-year so far in 2024, while Old Mutual’s Savings and Investments Monitor revealed that many South Africans are seeking financial relief, with a noticeable uptick in the proportion of individuals approaching lenders for help.

The monitor also showed that many are opting to skip insurance payments and halt retirement fund contributions to manage their expenses. The Prudential Authority has observed that more consumers are relying on credit cards and personal loans to cover essential needs like food and housing.

However, relief may be on the horizon in the form of interest rate cuts. Standard Bank’s head of home services, Toni Anderson, believes that anticipated interest rate cuts will lead to a strong recovery in the local housing market.

Anderson noted that the market has historically bounced back strongly after downturns, and with the country’s political landscape stabilizing and the currency performing well, there’s potential for renewed economic stability and boosted consumer confidence.

While the effects of interest rate cuts won’t be immediate, with changes expected to take around six months to work through the economy, homeowners can take heart that the tide may be turning in their favor.