Global Courant
Middle-class South Africans are under tremendous stress, struggling to pay back car and home loans while relying on credit cards to get through the month.
The latest Credit Stress Report from consumer analysis and research firm Eighty20 for the first quarter of 2023 paints a bleak picture for South Africa’s middle class and affluent households, with prevailing economic pressures spilling over to even those who could previously bear the worst.
The report unravels the credit behavior of four Eighty20 consumer segments that make up 78% of all credit-active South Africans and 92% of all loan value.
The first quarter of the year marks a particularly poignant data point for middle-class South Africans, where rising debt and lower incomes mean that this segment is now spending 70% of their monthly income to cover debt payments.
This has led to an increase in overall defaults among middle-class households, with 21% of all debt payments defaulting.
More worryingly, the stress is spilling over even to the more affluent market, where 23% of debt defaults and 60% of average monthly income is spent paying off credits and loans.
Here is the current credit health of the four major market segments assessed by Eighty20:
Mothers of the Nation
Average monthly income: R1,000 Average monthly amount: R578 (-2.3%) Percentage of new defaults: 49%
Installments-income ratio: 27%
Mass credit market
Average monthly income: R5,000 Average monthly amount: R1,999 (+2.5%) Percentage of new defaults: 22%
Installments-income ratio: 36%
Middle class worker
Average monthly income: R15,000 to R25,000 Average monthly amount: R10,267 (+7.8%) Percentage of new defaults: 21%
Installments-income ratio: 70%
Mothers of the Nation
Average Monthly Income: R42,000+ Average Monthly Amount: R20,939 (+7.1%) Percentage of new defaults: 23%
Installments-income ratio: 60%
Main problem areas
Eighty20’s data shows that the top earners in its segments – middle-class workers and affluent heavy hitters – are coming under pressure, with mortgages and car loans on dwindling budgets.
Home loans, in particular, are causing a lot of pain for consumers, the group said, with a sharp 27% year-over-year increase in average mortgage repayments, mainly due to rising interest rates.
The 50 basis point interest rate hikes in March and May brought the main lending rate to 11.75%, the highest since 2009. These interest rate hikes resulted in an increase in installments of R4,600 per month for a closed loan of R1.5 million. mid 2021.
“Nearly 99% of home loan balances are held by the heavyweights (76%), middle class workers (17%) and retirees (6%),” Eighty20 said.
“The heavy hitter segment accounted for R87 billion (11% year-on-year) growth in balances, while middle class worker balances shrank by 4%, bringing the total increase to R82 billion – an increase of almost 8% with an average monthly installment of 27% on an annual basis.”
The home loan portfolio for middle-class workers – by value and holders – has declined in the fourth quarter since 2021, with the total home loan portfolio for all customers growing just 9.7% over that period.
In the fourth quarter of 2022, the affluent segment saw a 24% increase in home loan balances going bankrupt year-over-year, while in the first quarter of 2023 that figure rose further to 34%, painting a depressing picture for the retail property market where economic challenges and rising interest rates are depressing growth, the group said.
Vehicle financing (VAF) shows a similar pattern for the mid-range and high-end segment. The number of new defaults on VAF for these segments has steadily increased since mid-2022, while the number of people with this type of loan has been falling since the end of 2021.
The VAF loan portfolio has contracted 8% year-on-year for the middle class, with a change in the new default rate (CRDN) of 23% year-over-year for the 600,000 middle class VAF holders.
“With a mid-market installment rate now crossing the 70% mark, how these customers can continue to pay VAF and home loans is a real concern,” said Eighty20.
Heavy hitters currently have a 60% installment-to-income ratio. For all credit-active South Africans, this ratio stands at 44%.
“Loans in default – the share of current loans that defaulted during the quarter – rose 17.4% over the past year. This CRDN is an early warning signal for the credit status in the country and has been in double digits for the past two quarters.
“The CRND surge is driven in particular by new defaults in secured products – a clear sign that even the wealthiest customer segments are also feeling the pain of South Africa’s economic woes,” the group said.
The biggest concern for middle class South Africans is how much difficulty they have in paying VAF and home loans.
“Total credit card debt for this segment continues to grow and has increased by 7% over the year, with average credit card loans increasing by 8% to over R31,000. Despite an 8% and 4% drop in VAF and home loan balances, the first quarter saw high year-over-year increases in the number of new defaults for these loan types – 22% and 32%, respectively.”
For the most affluent, this segment was responsible for the overall growth in total home loan balances, with average annual installment growth of 27%.
Total home loan balances were up 11% year-on-year, but combined with an increase in home loan CRND from 24% in Q4 to 34.3% in Q1, this paints a depressing picture for the retail property market. The CRND for VAF was 10% annualized.
Read: Reserve Bank raises interest rates by another 50 basis points
