Preventing arrears when interest rates rise

The South African Reserve Bank (SARB) has raised the prime rate to 10.75%, making debt repayments more expensive and increasing the risk of arrears.

Rental agents can prepare by:

• Checking tenant affordability carefully, especially their debt spending

• Putting clear arrears recovery procedures in place

Historic data from the PayProp Rental Index shows that arrears tend to follow interest rate increases by around six months. September’s rate rise would therefore start to affect arrears in around March or April 2027.

However, the September rate rise is the second of the year. SARB already raised the prime rate in May, so we’re likely to see the first effects on arrears around the end of this year.

Reducing arrears risk with tenant screening

Interest rate hikes don’t affect all tenants equally – but a credit check alone won’t show you which tenants are at most risk from higher rates. PayProp’s Tenant Assessment Report combines credit scoring with income and spending analysis to categorise applicants based on risk.

Tenant Assessment Report data in the Q2 2026 PayProp Rental Index showed that the average rental applicant spent 49.5% of their income on debt. But averages can be misleading: some tenants spend a lot more on debt than others.  

In Q2, applicants classed as high risk by the Tenant Assessment Report spent more than twice as much on debt repayments as minimum- and low-risk tenants. That puts them at more risk of arrears when interest rates rise.

On top of that, SARB raised interest rates because of rising inflation. Tenants’ disposable income – everything left over after debt and rent payments – doesn’t go as far as it did before, so an unexpected bill is more likely to push them into arrears.

Minimum- and low-risk tenants (as classified by the Tenant Assessment Report) had 36.2% of their income left over after debt and rent in Q2. High-risk tenants had little or nothing, giving them no way to absorb rising costs.

As the risk of arrears rises, rental agents will need to use smart tenant assessment tools to place less risky tenants. It’s also good practice to reassess tenants at renewal in case their financial status has changed. Getting these processes right can help rental agents protect their landlords and commission income, even when interest rates rise.