The fourth quarter 2017 FNB Household Sector Debt-Service Risk Index declined (improved) from 5.16 in the prior quarter to 5.07 (scale of 0 to 10). This means that Household Sector vulnerability to interest rate and economic shocks, which could compromise ability to repay debt, has been greatly reduced over the past decade or more, from a multi-decade Index high of 7.46 at a stage of 2006.
The key contributor to this improvement (lowering) in the level of vulnerability has been a significant decline in the Household Debt-to-Disposable Income Ratio since early-2008. FNB estimates that to cause a similar level of Household Sector Credit Stress to that of 2008/9, where Prime Rate peaked at 15.5%, Prime Rate would be required to rise to 17.4% this time around. Therefore, lower indebtedness implies that the Household Sector has some “extra breathing space” compared to its more highly indebted days of a decade ago.