Middle class South Africans are in serious trouble
Middle-class South Africans are under immense stress, struggling to make vehicle and home loan repayments while relying on credit cards to make it through the month.
The latest Credit Stress Report by consumer analytics and research company Eighty20 for the first quarter of 2023 paints a bleak picture for South Africa’s middle-class and affluent households, with prevailing economic pressures feeding through to even those who could previously bear the worst of it.
The report unpacks the credit behaviour of four Eighty20 consumer segments that comprise 78% of all credit active South Africans and 92% of all loan value.
The first quarter of the year marks a particularly harrowing data point for middle-class South Africans, where rising debts and lower incomes mean that this segment is now spending 70% of their monthly income to cover debt instalments.
This has led to an increase in overall defaults among middle-class households, with an increase of 21% in debt going newly into default – to a rate of 3.4% of the total.
More worrying is that the stresses are even feeding through to the more affluent market, which experienced an increase of 23% of debts going newly into default – to a rate of 1.7% of the total – and 60% of average monthly income going into paying off credit and loans.
This is the current credit health of the four main market segments assessed by Eighty20:
Mothers of the Nation
- Average monthly income: R1,000
- Average monthly instalment: R578 (-2.3%)
- Rate of new defaults: 11.7% (+49%)
- Instalments-to-income ratio: 27% (-2.9%)
Mass Credit Market
- Average monthly income: R5,000
- Average monthly instalment: R1,999 (+2.5% YoY)
- Rate of new defaults: 6.2% (+22% YoY)
- Instalments-to-income ratio: 36% (+2.2% YoY)
Middle-Class Worker
- Average monthly income: R15,000 to R25,000
- Average monthly instalment: R10,267 (+7.8% YoY)
- Rate of new defaults: 3.4% (+21% YoY)
- Instalments-to-income ratio: 70% (+7.1% YoY)
Affluent ‘heavy hitters’
- Average monthly income: R42,000+
- Average monthly instalment: R20,939 (+7.1% YoY)
- Rate of new defaults: 1.7% (+23% YoY)
- Instalments-to-income ratio: 60% (+5.2% YoY)
Key problem areas
Eighty20’s data shows that the top earners among its segments – middle-class workers and affluent ‘heavy hitters’ – are taking strain, with home loans and vehicle financing burdens on shrinking budgets.
Home loans, in particular, are causing significant pain for consumers, the group said, with a steep 27% YoY increase in average mortgage instalments due mainly to rising interest rates.
The 50-basis point interest rate hikes in March and May brought the prime lending rate to 11.75%, the highest it has been since 2009. These rate hikes have increased instalments by R4,600 a month for a R1.5 million loan taken out in mid-2021.
“Nearly 99% of home loan balances are held by the heavy hitters (76%), middle-Class workers (17%) and retiree (6%) segments,” Eighty20 said.
“The heavy hitter segment accounted for R87 billion (11% YoY) growth in balances with middle-class workers balances shrinking by 4%, bringing the overall increase to R82 billion – a nearly 8% increase with average monthly instalments up YoY by 27%.”
The home loan book for middle-class workers – by value and holders – has been in decline since 2021 Q4, with the total home loan book across all customers only growing 9.7% over that period.
The fourth quarter of 2022 saw the affluent segment experience a 24% increase in home loan balances going into default YoY, while Q1 2023 has seen that figure increase 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.
For the middle-class and affluent segments, vehicle financing (VAF) shows a similar pattern. The rate of new defaults on VAF for these segments has increased consistently since mid-2022, while the number of people with this type of loan has been dropping since the end of 2021.
The VAF loan book has shrunk by 8% YoY for the middle class, with a change in the rate of new defaults (CRDN) of 23% YoY for the 600,000 middle-class VAF holders.
“With an instalment-to-income ratio for the middle class that has now breached the 70% mark, a real concern is how these customers are able to continue paying VAF and home loans,” Eighty20 said.
Heavy hitters currently have a 60% instalment-to-income ratio. For all credit-active South African’s this ratio sits at 44%.
“Loans newly in default – the proportion of current loan balances that went into default during the quarter – was up by 17.4% over the last year. This CRDN is an early warning sign for the state of credit in the country and has been in double digits for the last two quarters.
“The CRND increase is driven particularly 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 they are struggling to pay VAF and home loans.
“Total credit card debt for this segment continues to rise and is up 7% over the year, with average credit card loan balances up 8% to more than R31,000. Despite an 8% and 4% drop in VAF and home loan balances, quarter one saw high YoY increases in the rate of new defaults for these loan types – 22% and 32%, respectively.”
For the most affluent, this segment accounted for all of the growth in total home loan balances, with average instalments up YoY by 27%.
Home loan total balances increased by 11% YoY, 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% YoY.
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