Wealthy South Africans are falling behind on their home and car loans – here’s what they are paying

Credit bureau Experian has published new data showing how the pandemic and lockdown has impacted affluent South Africans.

The group said that while the lockdown impacted poorer South Africans initially, its Consumer Default Index (CDI) shows that wealthier South Africans are no longer immune to financial struggles.

The Experian Consumer Default Index (CDI) is designed to measure the rolling default behaviour of South African consumers with home loan, vehicle loan, personal loan, credit card and retail loan accounts.

The index looks at six macro Financial Affluence Segmentation (FAS) in analysing its data:

  • Luxury Living (2.5% of credit active population) – Affluent individuals representing the upper crust of South African society with the financial freedom to afford expensive homes and car;
  • Aspirational Achievers (9.3% of credit active population) – Young and middle-aged professionals with the resources to afford a high level of living while furthering their careers, buying property and establishing families;
  • Stable Spenders (7.2% of credit active population) – Young adults with that rely on financial products to assist in making ends meet or to afford specific necessities such as clothing and school fees, or seasonal luxuries;
  • Money Conscious Majority (40.0% of credit active population) – Older citizens that are conscious of where and how they spend their money; often seeking our financial products to cover basic needs or for unforeseen expenses;
  • Laboured Living (24.6% of credit active population) – Financially limited as salaries are below national tax thresholds, they spend their money on basic living necessities such as food and shelter;
  • Yearning Youth (16.4% of credit active population) – Very young citizens that are new to the workforce; this mix of labourers and possibly working students earn low salaries and are limited to spending on non-essential goods.

Jaco van Jaarsveldt, chief decision analytics officer at Experian Africa, said macro Financial Affluence Segmentation (FAS) groups 1 and 2, with the highest exposure to secured lending, exhibited the most significant deterioration between December 2019 and December 2020.

“It’s clear to see that there is a significant impact on the Luxury Living group.

“With an average opening home loan balance in excess of R1.2 million  – 54% owning one home and 25% owning multiple properties – and an average opening vehicle loan balance greater than R450,ooo.

“This group is highly exposed to secured credit resulting in a Consumer Default Index (CDI) deterioration from 2.40 in December 2019 to 2.72 in December 2020.”

Van Jaarsveldt said this deterioration is largely influenced by their high exposure to vehicle loans, specifically, where the Luxury Living group accounts for more than 30% of the market.

“Similarly the Aspirational Achievers group, with an average opening home loan balance of around R550,000 (51% owning at least one home) and an average opening Vehicle Loan balance greater than R250,000, is also exposed to secured credit resulting in a CDI deterioration from 3.39 in December 2019 to 3.67 in December 2020.

“Aspirational Achievers account for 45% of the Vehicle Loan market and 35% of the Personal Loans market, which makes them highly exposed in both the product types that showed deterioration in Dec 2020.”

The Money Conscious Majority group, which makes up most of the South African credit-active population (around 40%), also saw a significant deterioration in their CDI from 5.71 in December 2019 to 6.05 in December 2020.

While exposure to secured credit facilities is low in this group  – 25% own a property, and the average opening vehicle loan balances is around R160,000 –  exposure to unsecured facilities like personal loans and retail credit is very high, with these consumers making up approximately 30% of the market in both these products.

The deterioration in the personal loans CDI had a particularly negative effect on these consumers.

Van Jaarsveldt said that the Stable Spenders group, saw a meaningful improvement in CDI, down from 7.35 in December 2019 to 5.98 in December 2020.

Considering that these consumers typically earn below-average incomes and are often highly exposed to retail credit, it seems Stable Spenders in particular are less likely to take up new loan products, which is helping them to better meet their existing debt commitments.

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Wealthy South Africans are falling behind on their home and car loans – here’s what they are paying