Despite 5% rise in credit demand, mortgage advances and fixed asset purchases lag behind

Credit demand grew by 5.0% in May, slightly exceeding April’s 4.6% and surpassing market expectations of 3.0% according to the Private Sector Credit Extension(PSCE).  

Since interest rate cuts began in September last year, overall credit growth has gathered momentum, with most subcategories recording increases during May, according to Aluma Capital.

However, mortgage advances and credit for fixed asset purchases remain subdued, says  Frederick Mitchell, chief economist at Aluma. 

He said that despite a total interest rate reduction of 175 basis points since September last year and an additional 25-basis-point cut on May 29 this year, property demand has been sluggish.

“Elevated consumer debt levels, stagnant wages, and rising living costs have limited a strong recovery. Nonetheless, the full benefits of lower rates are expected to materialise later in 2025 as household disposable incomes improve, supported by positive market sentiment,” Mitchell said. 

The asset and fund management company said in May, instalment credit sales rose nearly 1% month-on-month, following a 0.3% increase in April, with an annual growth rate of 6.2%.

It said over the past two years, consumers have increasingly relied on short-term credit to manage rising living expenses, reflected in a 7.0% increase in other loans and advances, up from 6.6% in April.

It added that growth in property and fixed asset purchases remained modest, with mortgage advances growing just 3.5% in May, consistent with April. This subdued activity originates from late 2023, when rising interest rates constrained property demand.

However, with recent rate cuts, especially the 25-basis point reduction in May, and further easing anticipated, demand for property and fixed assets is expected to increase as household incomes stabilise and grow.

“With inflation remaining favourable, ongoing rate reductions should further boost disposable incomes, fostering increased demand for goods and fixed assets into the second quarter of 2025 onwards.” 

Meanwhile, young South Africans who are said to be actively contributing to key sectors of the economy, remained underrepresented in the credit market, according to Experian’s latest Consumer Default Index (CDI) for the first quarter of this year.

While the CDI for the total market has improved by 14% year-on-year, the report highlights persistent barriers that prevent youth from building financial independence through responsible credit access.

The CDI Youth measure, an indication of first-time technical arrears amongst consumers in youth segments, typically under 30-improved significantly over the past year, decreasing from 7.55 in March last year to 5.76 in March 2025 this year.

This positive shift in CDI is primarily said to be influenced by a more cautious lending environment, which has led to restricted credit supply.

“The Q1 2025 CDI data provides a critical lens into the evolving credit profile of young South Africans. While the improvement in youth CDI might seem like good news, our analysis indicates it's more a reflection of limited credit availability,” says Jaco van Jaarsveldt, head of Commercial Strategy and Innovation at Experian.

“This means that many young South Africans do not establish a healthy credit history, which is vital for their long-term financial independence. We need to explore how to responsibly open doors for this critical demographic, facilitating financial and credit inclusion in an environment that is increasingly looking to non-traditional ways of assessing consumers,” Van Jaarsveldt said. 

However, although young people are entering the property market later than in previous years, data indicates that they still have a strong affinity for homeownership,” says Rhys Dyer, CEO of the ooba Group.

This was as the latest data from Lightstone revealed that young adults (aged 20-35) accounted for 29.7% of all property transactions last year, down from 36% in 2019 and 41% 10 years ago. Notably, 69% of buyers in this age group were purchasing property for the first time.

Adding to this, Lightstone’s data highlighted homebuyers aged 36-50 as top contenders in the market, accounting for 43% of home purchases, with 42% of this age segment purchasing homes for the first time.

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