South African homeowners to kiss R1,000 per month relief goodbye

South African homeowners and consumers enjoyed significant relief in 2025, with the monthly repayment on a typical R1.5 million home falling by over R1,000 per month. 

Closely tied to this is the rise in disposable income for consumers, which boosted the local economy and was poised to continue amid low inflation and falling interest rates. 

However, this outlook has flipped following the US-Israeli war on Iran, which has sent fuel prices soaring and is widely expected to result in interest rate hikes in the near future. 

For example, Old Mutual Investment Group (OMIG) has revised its interest rate outlook to 50 basis points of hikes in 2026 from 75 basis points of cuts at the beginning of the year. 

This will undo some of the relief homeowners experienced on their home loans and the additional disposable income consumers had in 2025. 

Discovery Bank recently outlined how consumer spending was boosted in 2025 and the contribution this made to economic growth. 

Higher inflation and rising interest rates is likely to reverse this, although CEO Hylton Kallner said the impact will be softened by the cautious nature of South Africans. 

Kallner explained that South African consumers do not respond as sharply to changing conditions as their global peers, making them more resilient but also minimising the potential economic boost from increased disposable income. 

As inflation and interest rates fell, South African consumers were slow to significantly increase their spending, particularly on durable goods. 

This limited the potential upside with regard to economic growth, but will also ensure the drop off from rising inflation and interest rates will not be as sharp as in other economies. 

Data from Discovery Bank and Visa, contained in the SpendTrend26 report, showed that consumer spending has remained resilient in South Africa through various interest rate cutting and hiking cycles. 

The data from 2025 showed that spending growth broadened beyond basic necessities and began to grow at a faster pace than inflation. 

Overall spend growth exceeded inflation by 0.8 percentage points, signalling sustained consumer activity. This is the first time this has happened since the first SpendTrend report in 2023. 

This was boosted predominantly by falling interest rates, the bank said, which frees up disposable income that would otherwise have been spent paying down debt. 

Home loan repayments on a R1.5 million property, for example, fell by over R1,000 per month in 2025 as the Reserve Bank cut interest rates by a cumulative 100 basis points. 

The spending growth in comparison to the prime lending rate over the past three SpendTrend reports can be seen in the graph below.

Relief hopes are dashed

Any hopes of further relief have been dashed by the conflict in the Middle East, with projections for further interest rate cuts being thrown out the window. 

Discovery Bank expects the global energy disruptions from the conflict to increase food and fuel costs, pushing consumers to intensify their value-seeking behaviour. 

With groceries, fuel, and transport already accounting for more than 70% of total household spending, consumers will have to cut back substantially should prices remain elevated. 

The bank expects South Africans to intensify their efforts to seek bargains, consolidate shopping trips, and shift to online grocery platforms. 

Much of this outlook depends on when the conflict will end and how quickly oil prices will return to ‘normal’ or pre-war levels of around $60 per barrel. 

OMIG senior analyst Sisamkele Kobus explained that the asset manager’s base case is for oil prices to remain above $90 pe barrel for the next nine months. 

In this base case, this translates into significantly higher inflation in South Africa, with it peaking at 5.1% in 2026. This is far above the Reserve Bank’s 3% target point. 

“The important number is peak inflation, and that will be 2.1 percentage points above target. That is significant and will push the Reserve Bank to act,” Kobus said. 

“In that environment, the Reserve Bank will not look through it and assume it will be transitory. We have pencilled in 50 basis points of hikes, 25 in July and 25 in September or November.” 

Kobus said the Reserve Bank is helped by it starting at a point where inflation is well behaved at 3.1%, and the policy environment is restrictive. 

This gives it space to wait until July to hike rates, when it will have more data to inform its assessment of the impact of rising oil prices on inflation in South Africa. 

Interest rate hikes will impact consumer spending by reducing disposable income, with more take-home pay flowing towards debt repayments. 

This will have significant ramifications for South Africa’s economy, which is largely driven by consumer spending. 

The pre-war inflation expectations (gold line) can be seen in the graph below, compared to the post-war expectations (green line).