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Growth in credit extension to households increased somewhat this year and households have become increasingly vulnerable to adverse economic shocks. While most household leverage ratios have only increased slightly (so far) this year, the household debt to disposable income ratio remains high. Moreover, the debt-service cost to disposable income ratio has started to rise notably. Hence, households are more vulnerable in terms of the affordability of credit. This is especially relevant with further interest rate hikes in 2016 firmly on the cards. Successive interest rate increases, on a relatively high level of debt, can lead to a sharp acceleration in the debt-service cost ratio. This places downside risk on our consumption expenditure forecast.
