Record-low arrears at risk after interest rate rise

South Africa’s interest rate cutting cycle is over, raising the risk of rent arrears.

The South African Reserve Bank raised the prime rate to 10.5% on 28 May, the first time it has hiked interest rates in three years. The Monetary Policy Committee (MPC) said they raised inflation forecasts due to the ongoing conflict in the Middle East pushing up energy prices. Consumer price inflation hit 4% in April, up from 3.1% in March, and the MPC now expects it to average 4.4% this year.  

Economists now expect one more 0.25% interest rate increase this year.

Interest rate hikes will help to hold down inflation, but they also make it tougher for tenants to afford rent. In the latest PayProp Rental Index, the average tenant spent 46% of their income on debt repayments, meaning any movement in interest rates affects a big proportion of their income.

Their 25.5% average disposable income also won’t go quite as far as fuel and other costs rise.

Nevertheless, arrears are currently near record lows: 17.0% of tenants were behind on their rent in the latest Rental Index, just 0.1% above the all-time low. But this may not last. As the cost of living climbs, landlords and agents could see more of their tenants slip into arrears.  

Get ahead of rent arrears by finding out how to coach tenants to pay rent more reliably.