MAIN IMAGE: John Loos – independent economist
Editor
South African households came through the second quarter of 2026 in better financial shape than expected, despite higher fuel prices, rising inflation, and an interest rate hike in May. However, independent economist John Loos warns that the full effect of these shocks often arrives with a lag, and that household finances and debt-service pressure are likely to deteriorate in the second half of the year.
In his latest Household Sector Economy report, Loos attributes much of the initial pressure to the Iran-US conflict, which he says drove a sharp increase in domestic fuel prices and contributed to the first South African Reserve Bank (SARB) rate hike in May.
Consumer spending held firm
According to Statistics South Africa’s second-quarter GDP data, cited in the report, real GDP declined by 0.2% quarter-on-quarter (seasonally adjusted), while real household consumption expenditure grew by 0.4%. On a year-on-year basis, real consumer spending growth reached 2.9%, up from 2.5% in the first quarter.
Loos describes this as something of a surprise given the quarter’s conditions. He says he had initially assumed the growth was driven by a further decline in the savings rate, but that this turned out to be only part of the explanation.
Income growth outpaced inflation
The SARB’s Quarterly Bulletin showed household disposable income growth accelerating from 4.6% year on year in the first quarter to 7.8% in the second, staying well ahead of consumer inflation. As a result, real disposable income growth rose from 1.3% to 2.97% year on year.
With wage bill growth slowing on the back of weak employment growth, Loos suggests that income from investments may have played a larger role in this boost, which he sees as a lagged effect of a mildly better economic year in 2025.
The rest of the spending growth came from a further decline in the net household savings rate, which moved from -1.3% of disposable income in the first quarter to -1.6% in the second.
Debt ratios improved
Stronger income growth also helped household debt ratios. According to the report, the household debt-to-disposable income ratio eased from 62.1 in the first quarter to 61.3 in the second, its lowest level since 2019.
The debt-service ratio, which measures interest paid on debt as a share of disposable income, improved slightly from 9.5 to 9.4, despite the 25-basis-point rate hike in late May. Loos notes that this ratio can be a useful indicator of the near-term direction of credit arrears.
A tougher second half
Loos expects the picture to change in the latter half of 2026. He points to economic growth that was already under pressure in the second quarter, oil prices that remain elevated as the US and Iran attempt to reach an agreement, and the SARB’s leading business cycle indicator, which was pointing downward as at July. In his view, this suggests continued economic pressure that will slow employment, wage bill growth, and ultimately investment income growth.
A second rate hike followed in late September, and the report notes that the lagged impact of the May hike has yet to be fully felt. Loos also anticipates significant fuel price increases in October, with petrol rising by more than R3 a litre and diesel by a similar amount. He says this could push consumer price inflation back above 5% by October, following a lull after its 5% high in June, which in turn raises the risk of a further rate hike.
What it could mean for the mortgage market
Loos anticipates a slowdown in real household disposable income growth in the second half of the year, which may stall the decline in the debt-to-disposable income ratio. Combined with rising interest rates, he expects this to lift the debt-service ratio, which he describes as a fairly useful predictor of the direction of arrears on debt repayments, particularly mortgage debt.
The report notes that growth in the value of new residential mortgage loans granted has already slowed, as it typically does when interest rates rise. SARB data in the report shows this growth rate easing from a peak of 18.2% to 9.54% year on year, with the prime rate now at 10.75%. Loos expects the second effect of the rising rate cycle to be a moderate increase in mortgage arrears.
