South Africa’s ‘luxury living’ citizens are falling behind on their home and car loans – here’s what they are paying

New data from credit bureau Experian shows that the rate people defaulted on their loans for the first time increased in the first quarter of 2021, while South Africa’s most affluent consumer segments continue to be most affected by macro economic conditions.

Experian South Africa’s Consumer Default Index (CDI) deteriorated from 4.02 in December last year to 4.33 in March 2021, as people struggled to keep up with their payments related to the increased economic activity following the easing of strict lockdowns towards the latter part of 2020.

“This deterioration is primarily due to the increase in business volumes during the latter parts of 2020 when strict lockdown rules were relaxed at the end of the 2nd Covid wave – particularly for credit cards and personal loans over the Black Friday and Festive season period in 2020,” said Jaco van Jaarsveldt, chief decision analytics officer at Experian Africa.

“The combination of the economy opening up and the extended Black Friday ‘month’ have resulted in an increase in the incidence and value of first-time defaults among SA consumers.”

He said that the decline resulted from the collective worsening for all products comprising the CDI, except home and retail loans. Home loans showed a slight improvement from 1.86 in March 2020 to 1.73 in March 2021 as consumers continue to focus on and invest in their homes as it has increasingly become a hybrid place of work.

“Retail loans continue to show an improvement from 13.22 in March 2020 to 11.20 in March 2021 due to tighter lending criteria imposed prior to Covid, exaggerated by very constrained trading conditions during the various periods of lockdown.”

In spite of these improvements, the CDI recorded a Y-o-Y deterioration, due to the deterioration in vehicle loans (3.67 in March 2020 up to 4.1 in March 2021), credit card (6.74 in March 2020 up to 8.39 in March 2021) and personal loans (9.67 in March 2020 up to 10.42 in March 2021).

What is evident is that the deterioration correlates with consumer needs – vehicles have become less of a priority since the onset of Covid as commuting to work was no longer essential, Experian said.

Similarly, consumers are increasingly accessing personal loans and using available revolving credit card facilities to cover daily living expenses during these trying times, which started well before the Covid pandemic struck and was and still is underpinned by an economy that, whilst recovering faster than anticipated, is still marred by structural issues that require addressing before any long term sustainable growth can be realised.

As has been the case over the past three quarters, Financial Affluence Segmentation (FAS) groups 1 and 2 continue to exhibit the most significant deterioration (CDI % change), the credit specialist said. “We continue to see the most affluent FAS Groups being the most negatively affected due to their high exposure to secured credit. There was a notable impact on Luxury Living group,” said Van Jaarsveldt.

“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 R450,000, this group is highly exposed to secured credit resulting in a CDI deterioration from 2.65 in March 2020 to 3.42 in March 2021.”

The Aspirational Achievers group similarly exposed to secured credit resulted in a CDI deterioration from 3.55 in March 2020 to 3.80 in March 2021, he said.

The Money Conscious Majority, which makes up the majority of the South African credit-active population (~40%), saw an improvement in CDI from 6.44 in March 2020 to 6.08 in March 2021.

While exposure to secured credit is low in this group (25% own a property, and the average opening vehicle loan balances is – R160,000), exposure to unsecured facilities like personal loans and retail credit is  high, with these consumers holding – 30% of the market in both these products. The drastic improvement in retail CDI has a been the driver for the nett improvement in FAS 4 CDI.

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.

Read: A third of South Africa’s middle-class set to be wiped out: lender

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South Africa’s ‘luxury living’ citizens are falling behind on their home and car loans – here’s what they are paying