Here’s how much cash-strapped South Africans owe on their houses and cars

 ·3 Jul 2023

Consumer credit reporting agency TransUnion has published its Q1 2023 South Africa Industry Insights Report finding South Africans continue to be under financial pressures leading to shifts in consumer and lender behaviours.

The report shows notable increases in unsecured lending originations, with origination volumes rising by nearly 25% YoY across all risk categories.

However, lenders exhibited a cautious outlook by only marginally increasing the average credit limit on new cards despite the surge in demand.

“While serious delinquency rates improved overall, there was a concerning 11% YoY increase in one-month overdue accounts. This underscores the need for lenders to ensure proactive credit management and maintain open lines of communication with customers to preserve the market’s stability,” said the report.

In the secured lending categories (home and vehicle finance loans), the vehicle asset finance market faced a decline, with origination volumes down by 6.8% YoY.

This was influenced by rising interest rates, high inflation and a weaker currency; consumers are holding onto their vehicles for extended periods or exploring alternatives like vehicle rentals, said TransUnion.

It added that the decline was juxtaposed by a 6.5% YoY increase in the average loan amount for those consumers who did opt for vehicle finance loans due to the rising cost of vehicle ownership.

Contrastingly, the home loan market grew despite the high-interest rate and inflationary environment.

The change can be attributed to affluent consumers purchasing high-value properties and ongoing semigration within the country due to the persistence of remote working conditions. However, the report noted that consecutive increases in the repo rate showed signs of potential strain on consumers’ repayment abilities.

Vehicle Finance

The vehicle loan market navigated choppy waters as a decrease in originations was offset by
loan and balance increases

Origination growth remains low as the global automotive industry had another challenging quarter hampered by the shortage in inventory. The shortage in supply of vehicles and the rise in inflation caused prices to increase further for both new and used cars, said TransUnion.

Vehicle finance originations are down 6.8% YoY to 123,124 in Q1 2023. At current levels, origination volumes are 11.1% below pre-pandemic levels, the credit specialist said.

“Despite the decline in account volumes, those consumers who did opt for vehicle finance loans borrowed more significant amounts, with the average loan amount increasing by 6.5% year over year,” said the report.

These larger loans, combined with a 50 bps increase in the repo rate, led to a 7.4% increase in outstanding balances and a 6.7% increase in average balances year over year.

The credit expert said that the average new loan amount hit a new high at R386,116, as this trend was linked to the higher cost of vehicle ownership.

While serious account-level delinquency rates decreased by 190 bps year over year, indicating South African consumers are prioritising repayment of secured lending products. Q1 2023 saw a 650 bps increase in the first month defaults year over year.

“This alarming increase underscores the importance for lenders to effectively manage these impairments to prevent them from rolling into more serious defaults and threatening the market’s stability,” it said.

Home Loan

The South African home loan market continued to flourish amid economic challenges, with strong growth recorded in volumes and balances.

Home Loan origination volumes increased by 9.1% year over year to R52,223. This growth occurred despite the high-interest rate and inflationary environment, suggesting those consumers who intended to buy a home followed through with their intent, said TransUnion.

Average new loan amounts also saw a considerable surge of 21.5% year over year to R955,654, likely driven by more affluent consumers purchasing high-value properties.

The credit expert asl noted that this growth could also be attributed to the ongoing semigration within the country as remote working conditions persist post-pandemic.

However, the combined impact of higher loan values and volumes led to a significant increase in outstanding balances, reaching R 1.1 trillion, a 5.2% year-over-year increase, while the repo rate’s 50 bps rise increased average balances by 4.8% yearly.

“There are signs of potential strain on consumers’ repayment abilities, as accounts with a single month of missed payments surged by 25% year over year, and both severe account-level and balance-level delinquencies also experienced marginal increases in Q1 2023, rising by 30 bps and 60 bps, respectively,” it said.

This pressure can be seen when considering the impact of the rate hikes since they started in November 2021.

May’s rate hike was the tenth consecutive hike, marking 475 bps since the cycle started, resulting in an additional repayment value for a R2 million home loan escalating by more than R 6,000 per month. This highlights the pressure on homeowners and the need for lenders to monitor these trends closely.

Read: Interest rate trouble ahead

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