Eighty20’s latest credit stress report shows that rising interest rates and rampant increases in food and fuel prices have made credit stress a significant concern for South Africans in 2022, with many people left with no choice but to increase their credit to get through the year and pay off existing loans.
As of December 2022, South Africa has seen seven consecutive interest rate hikes since November 2021 – increasing the prime lending rate by 3.25% over the past year. This translates to more than a R3,000 increase in monthly instalments on a R1.5 million home loan, said Eighty20 director Andrew Fulton.
According to Stats SA, Food and non-alcoholic beverages increased by 12.5% year-on-year, while housing and utilities increased by 4.3%, transport increased by 15.3%, and miscellaneous goods and services increased by 4.8%.
Adding to the rising costs of living is the price of fuel. Petrol vehicle owners are now paying R3.85 (19.6%) more for a litre of petrol, while diesel motorists are spending a significant R6.68 (38.7%) more for a litre since the start of the year when the price of 95 petrol was R19.61, and diesel was R17.24.
“At a macro level, the credit market is looking relatively resilient despite continued inflation and rising interest rates,” said Fulton. “However, a more detailed view of the credit market shows large pockets of customers are facing some significant financial distress,” he added.
Mass credit market
The mass credit market comprises 11.9 million adults, typically earning between R3,000 and R8,000 per month, said Eighty20.
The consultancy firm added that almost 80% of this segment is credit active, with most of this credit being unsecured: 80% have retail credit, 32% have unsecured credit, and 16% have credit cards – with only 1% having home loans, and even fewer have vehicle asset finance (VAF).
“These customers appear to be using unsecured, retail and credit-card debt to make ends meet,” said Fulton.
“While only 4% of all unsecured loan value moved into default this last quarter, average credit-card instalments have increased by 41% over the past year (R685 per month), with overdue balances going up by 26%,” he added.
The middle-class
The middle-class worker’s segment comprises 4.1 million adults, typically earning between R8,000 and R30,000 per month, said Eighty20.
Almost 75% of this segment is credit active, and it is starting to show signs of significant credit stress as the incomes can no longer support the middle-class workers’ lifestyles, added Eighty20.
The average instalment-to-income ratio has increased nearly 9% over the last year to 66%, which means that two-thirds of the average middle-class salary goes to servicing debt.
The middle-class worker is strongly aspirational, holding 25% of all VAF loans. According to Fulton, owning property is not always achievable for these customers, so they may opt to own a vehicle.
The report highlighted that 630,000 who have VAF are in particular distress, with the proportion of current VAF balances going into default this quarter up by 21%, while average instalments increased by 11% year-on-year (R535).
For the middle-class workers who have a mortgage, their average bond instalments are up 15% (R452) on last year, and their balance newly in default is up a frightening 19%, said Eighty20.
“This encapsulates the big issue amongst the middle class right now, as they’re not the wealthiest, they’re not the poorest, but they don’t have a whole lot of savings or buffer income to make these additional monthly payments,” said Fulton.
High-income earners
This is the wealthiest 5% of the population and has the largest span of income of any segment. As a result, they are divided into seven sub-segments with an average monthly income ranging from R30,000 to more than R120,000.
Many of the top 5% bought assets on credit while interest rates were low. However, interest-rate hikes and high inflation are starting to put real financial pressure on the lower-income sub-segments of this category, which have experienced an 18% increase in home-loan balances going into default over the quarter, said Eighty20.
On the wealthier end of this spectrum, consumers appear relatively immune to current economic pressures, with new defaults staying flat or improving across some credit products.
Despite this skewed experience, high-income earners have seen an 11% increase in total home-loan balances year-on-year, combined with a 16% increase in average instalments (R1,083). According to Fulton, some 1.2% of all current home-loan credits went into default this quarter, which is a significant 10% increase from last year. Businesstech