Here’s how much money the average South African owes on their car and house
TransUnion, a consumer credit reporting agency, has published the findings of its Q3 2020 South Africa Industry Insights Report. The results show the ongoing impact of Covid-19 on the consumer credit market and the difficult decisions some consumers have to make to balance their household finances.
Although the latest data primarily relates to a period when Covid-19 measures were less stringent than during the initial lockdowns seen earlier in the year, there was still a fall in consumer demand.
Application volumes declined as consumer confidence remained low, with a reduced appetite for new credit reflecting increased unemployment and high levels of financial hardship.
In Q3 2020, year-on-year (YoY) enquiry volumes fell by double digits across all the major consumer lending categories. The decline was most pronounced for credit cards (down 49%) and non-bank personal loans (down 29%).
Originations (measured by new accounts opened) also fell by double digits YoY for all major consumer credit categories. In the most recent period (Q2 2020 for originations due to reporting lag), the decline in volume was
most pronounced for clothing accounts (down 69.4%) and least pronounced for credit cards (down 23.1%).
Serious-level delinquencies (accounts three or more payments past due) increased across all major consumer credit categories as consumers continued to experience financial stress.
Carmen Williams, director of research and consulting for TransUnion South Africa, said: “With the prolonged nature of the pandemic, it’s clear that the economic impact has been significant and sustained. Consumer confidence and lender risk appetites have been severely impacted, and the latest results show the changing dynamics of both the demand and supply of credit.”
Q3 2020 Metrics for Major Consumer Credit Products
Auto Summary
The auto market continued to show signs of sustained strain as originations and enquiries declined and delinquencies continued to deteriorate. Lender portfolio management and effective risk reduction strategies from originations and throughout the account lifecycle are critical to mitigate this persistent deterioration in performance as delinquencies continue its dramatic acceleration.
Auto origination volumes for Q2 2020 declined (-53.7% YoY) as social distancing lockdown restrictions during Q2 2020 continue to take its toll on the industry. As vehicle prices continue to slow YoY for both new and used vehicles and have remained below inflation for the last two years, these assets have become more affordable.
In Q3 2020, total VAF balances grew steadily at 10.9% YoY. Refinancing options, low interest rates, renewed purchasing activity in Q3 2020, and a shift towards higher-priced vehicles (validated by higher average new account loan amounts which increased by 6.7% YoY to R315,160) have all contributed to this increase.
Auto serious-level delinquencies have been steadily deteriorating for the past three years, more than doubled over this time, and stood at 7.2% in Q3 2020. TransUnion recently conducted a study aimed at uncovering performance drivers for the auto market to better understand the cause of rising delinquencies.
The findings indicate that the industry dynamics of longer terms and higher loan-to-values coupled with higher risk appetite has caused this increase in delinquencies.
The rate of delinquency deterioration accelerated considerably for the two latest quarters, up by 190 bp and 160 bp YoY compared to Q2 2019 and Q3 2019 respectively, a sustained and concerning trend that requires immediate attention from lenders.
Home Loan Summary
The mortgage market showed slow balance growth and drastically reduced origination growth due to lockdown restrictions. The overall trend in rising delinquencies is a concern and has become more pronounced in recent quarters.
Home loan originations followed a similar trend as most product categories, decreasing by 62.4% YoY due to the severe lockdown restrictions enforced throughout the country in Q2 2020. However, loans that were granted during the period were at much higher values as observed by the considerable increase in average new loan amounts (46.4% YoY).
With interest rates at an all-time low, affordability for many South Africans has increased, allowing for much larger home purchase values than before.
Mortgage balances increased marginally by 2.6% YoY. Balance growth is largely attributed to an increase in average balance per account (up 3.1% YoY). An additional factor contributing to the rise in balances is the fact that, with such low interest rates, consumers with equity in their homes would prefer to tap into that surplus if they require additional liquidity as opposed to supplement their finances with an unsecured loan.
Account-level serious delinquency rates (3+ MIA) increased YoY by 350 bp to 7.8% in Q3 2020, marking the ninth consecutive quarter that home loan delinquencies have increased.
Having more than doubled in the last year, the delinquency rate on mortgages is now higher than auto loans.
This pronounced trend requires intervention, especially as home loan lenders increase their exposure by financing a greater portion of the total price. “This is of particular concern given the fact that most payment holidays granted as a result of the Covid-19 pandemic have either come to an end or will be in the near future,” TransUnion said.
Hardship survey
The latest TransUnion Financial Hardship Survey in South Africa showed that almost four in five (79%) South African consumers report their household income being negatively impacted by Covid-19. The survey also showed that among these impacted consumers, concerns about their ability to pay bills and loans remains high at 85%, with 29% expecting to run into a shortfall within one month.
“Due to the resourcefulness of many consumers when they face financial distress, there tends to be a delay in the level of delinquencies coming through. Consumers tend to work through a range of options before defaulting on a
loan – using savings, other formal borrowing facilities, or even borrowing from friends and family, before they will miss a payment.
“Many lenders have been proactive in offering treatments, and their continued support will hopefully reduce the severity of any impact going forward. Delinquency trends warrant continued analysis, and it will be critical to understand how consumers prioritise payments in the coming months,” said Williams.
Read: This is how many South Africans say they can’t pay their bills right now
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