Interest rates choking SA middle-class

With interest rates at the highest level in 14 years, households are taking tremendous strain. Some estimates put the increases in car and home loan repayments at an average of 11 percent and 38 percent in rand terms respectively in the last 18 months.

Nedbank says household debt burdens are at 62 percent of disposable income, while the “cumulative 475 basis point increase in interest rates since 2021 pushed debt service costs to 8,4 percent of disposable income from a 16-year low of 6,7 percent in the final quarter of 2021.

“As a result, households increasingly relied on savings to sustain living standards, depleting the buffers built up during the pandemic. The personal savings rate stood at -0,2 percent in the first quarter from a peak of 1,5 percent in the third quarter of 2020.”

It says “growth in mortgages, vehicle finance and personal loans softened, while demand for transactional credit remained relatively firm”.

Approval rates for vehicle finance and personal loan applications at Nedbank are at the lowest levels in five years, while for credit cards, only last year’s approval rate was lower.

Take-up rates on vehicle finance are at the lowest level in five years.

Home loans are the outlier, with approval rates at their highest in five years (higher than pre-pandemic). Take-up rates on home loans are at the highest level since 2019.

Data from Nedbank shows just how stark the increases in the costs of servicing debt have been in the last year.

Home loan repayments for its 3,4 million main-banked clients are up 18 percent on average versus the first five months of last year, vehicle finance debit orders have increased an average of 10 percent, and personal loan repayments are 4 percent higher. – Moneyweb.