ECONOMIC OUTLOOK: SA inflation undershoots expectations in May, Sarb may pause rate hikes

Rising interest rates create financial pressure and legal complexity.

Defaults, distressed sales, landlord-tenant disputes and community scheme arrears happen when economic conditions tighten, and households run out of room, says Van Deventer Dowlath & Marx Inc.

At the end of last month, the South African Reserve Bank's SARB (Monetary Policy Committee) raised the prime overdraft rate to 10.5%, South Africa's Monetary Policy Committee has raised the prime overdraft rate to 10.5%, spelling a direct reduction in monthly cash flow for anyone repaying a home loan linked to the prime rate.

A legal practice says it worked closely with economist Dr Roelof Botha, who says the MPC moved away from an inflation target range of 3% to 6% and replaced it with a fixed point of 3%.

That shift is said to have left little tolerance when external shocks pushed inflation upward. The firm said current inflationary pressures are largely supply-side, driven by rising global fuel prices linked to the conflict in the Middle East.

It said Nobel laureate Professor Joseph Stiglitz has argued that raising rates in response to oil price shocks is counterproductive.

“Supply-side inflation is not created by excess demand. Raising rates does not fix a fuel price shock. It reduces the spending power of households that had nothing to do with what is causing it.”

When mortgage repayments increase, pressure is felt throughout the rental market

According to Deventer Dowlath & Marx Inc, when mortgage repayments increase, pressure is felt throughout the rental market. It says landlords face higher holding costs and may pass these on through rental increases.

“Tenants who are already stretched will push back or default. This is the environment in which eviction applications, lease disputes, and rental arrears matters escalate. South Africa's eviction law is procedurally demanding and time-sensitive.”

The legal firm says levy arrears increase when household budgets tighten. It says trustees must maintain building operations and reserves while managing members who cannot pay. “Schemes that maintain tight governance, consistent rule enforcement, and transparent financial management are far better positioned to weather economic pressure.”

What can be done now?

The practice advises homeowners to review their bond structure and understand their exposure to rate fluctuations. It says that if one is a landlord, they should ensure that lease agreements and escalation clauses are legally sound.

“If you are a trustee, examine your levy recovery processes for compliance with the Sectional Titles Schemes Management Act. Do not wait for a problem to become a legal crisis before you seek advice.”

South African households are entering a more constrained financial period, as the modest momentum seen at the end of 2025 comes under pressure from rising living costs.

According to TransUnion’s recent insights, increases in fuel prices, renewed food inflation, and persistently higher borrowing costs are reshaping consumer sentiment, shifting from early signs of recovery in 2026 to a more defensive posture.

The data provider said this comes as the MPC delivered its latest interest rate decision of a 25-basis-point increase, against a backdrop of rising inflation, which increased to 4.0% in April from 3.1% in March, reflecting persistent price pressures across essential categories.

Cost pressures are compounding

Following the MPC’s decision to increase interest rates by 25 basis points, TransUnion said it noted that the move reinforces a financial environment where household momentum is already being challenged, and cost pressures are compounding.

“A 0.25% increase lands on households that are already under strain,” said Lee Naik, CEO at TransUnion Africa.

“This is not a new shock; it is an amplification of pressures that consumers are already managing. The combination of higher instalments and rising living costs accelerates the shift from cautious optimism to caution.”

“When fuel, food and borrowing costs rise together, the impact is not incremental; it is compounding. That is where we see the real pressure emerge, and where financial behaviour shifts decisively,” Naik added.

“The risk is not just higher rates; it is the combination of cost pressures hitting at once. The affordability challenge becomes immediate and more difficult to manage,” Naik said.