{"id":652927,"date":"2022-12-22T09:07:55","date_gmt":"2022-12-22T07:07:55","guid":{"rendered":"https:\/\/businesstech.co.za\/news\/?p=652927"},"modified":"2022-12-22T09:07:55","modified_gmt":"2022-12-22T07:07:55","slug":"middle-class-south-africa-is-in-serious-financial-trouble","status":"publish","type":"post","link":"https:\/\/businesstech.co.za\/news\/wealth\/652927\/middle-class-south-africa-is-in-serious-financial-trouble\/","title":{"rendered":"Middle-class South Africa is in serious financial trouble"},"content":{"rendered":"

Eighty20’s latest credit stress report shows that rising interest rates and rampant increases in food and fuel prices have made credit stress a significant concern for South Africans in 2022, with many people left with no choice but to increase their credit to get through the year and pay off existing loans.\u00a0<\/span><\/p>\n

As of December 2022, South Africa has seen seven consecutive interest rate hikes since November 2021 – increasing the prime lending rate by 3.25% over the past year. This translates to more than a R3,000 increase in monthly instalments on a R1.5 million home loan, said Eighty20 director Andrew Fulton.\u00a0<\/span><\/p>\n

According to Stats SA<\/a>, Food and non-alcoholic beverages increased by 12.5% year-on-year, while housing and utilities increased by 4.3%, transport increased by 15.3%, and m<\/span>iscellaneous goods and services increased by 4.8%.<\/span><\/p>\n

Adding to the rising costs of living is the price of fuel.<\/a> Petrol vehicle owners are now paying R3.85 (19.6%) more for a litre of petrol, while diesel motorists are spending a significant R6.68 (38.7%) more for a litre since the start of the year when the price of 95 petrol was R19.61, and diesel was R17.24.<\/p>\n

“At a macro level, the credit market is looking relatively resilient despite continued inflation and rising interest rates,” said Fulton. “However, a more detailed view of the credit market shows large pockets of customers are facing some significant financial distress,” he added.<\/p>\n

Mass credit market\u00a0<\/strong><\/p>\n

The mass credit market comprises 11.9 million adults, typically earning between R3,000 and R8,000 per month, said Eighty20.<\/p>\n

The consultancy firm added that almost 80% of this segment is credit active, with most of this credit being unsecured: 80% have retail credit, 32% have unsecured credit, and 16% have credit cards – with only 1% having home loans, and even fewer have vehicle asset finance (VAF).<\/p>\n

“These customers appear to be using unsecured, retail and credit-card debt to make ends meet,” said Fulton.<\/p>\n

“While only 4% of all unsecured loan value moved into default this last quarter, average credit-card instalments have increased by 41% over the past year (R685 per month), with overdue balances going up by 26%,” he added.<\/p>\n

The middle-class\u00a0<\/strong><\/p>\n

The middle-class worker’s segment comprises 4.1 million adults, typically earning between R8,000 and R30,000 per month, said Eighty20.<\/p>\n

Almost 75% of this segment is credit active, and it is starting to show signs of significant credit stress as the incomes can no longer support the middle-class workers’ lifestyles, added Eighty20.<\/p>\n

The average instalment-to-income ratio has increased nearly 9% over the last year to 66%, which means that two-thirds of the average<\/strong> middle-class salary goes to servicing debt<\/strong>.<\/p>\n

The middle-class worker is strongly aspirational, holding 25% of all VAF loans. According to Fulton, owning property is not always achievable for these customers, so they may opt to own a vehicle.<\/p>\n

The report highlighted that 630,000 who have VAF are in particular distress, with the proportion of current VAF balances going into default this quarter up by 21%, while average instalments increased by 11% year-on-year (R535).<\/p>\n

For the middle-class workers who have a mortgage, their average bond instalments are up 15% (R452) on last year, and their balance newly in default is up a frightening 19%, said Eighty20.<\/p>\n

“This encapsulates the big issue amongst the middle class right now, as they’re not the wealthiest, they’re not the poorest, but they don’t have a whole lot of savings or buffer income to make these additional monthly payments,” said Fulton.<\/p>\n

High-income earners<\/strong><\/p>\n

This is the wealthiest 5% of the population and has the largest span of income of any segment. As a result, they are divided into seven sub-segments with an average monthly income ranging from R30,000 to more than R120,000.<\/p>\n

Many of the top 5% bought assets on credit while interest rates were low. However, interest-rate hikes and high inflation are starting to put real financial pressure on the lower-income sub-segments of this category, which have experienced an 18% increase in home-loan balances going into default over the quarter, said Eighty20.<\/p>\n

On the wealthier end of this spectrum, consumers appear relatively immune to current economic pressures, with new defaults staying flat or improving across some credit products.<\/p>\n

Despite this skewed experience, high-income earners have seen an 11% increase in total home-loan balances year-on-year, combined with a 16% increase in average instalments (R1,083). According to Fulton, some 1.2% of all current home-loan credits went into default this quarter, which is a significant 10% increase from last year.<\/p>\n

\n

Read: How best to budget during the festive season in South Africa<\/a><\/strong><\/p>\n","protected":false},"excerpt":{"rendered":"

Eighty20’s latest credit stress report shows that South African consumers are showing a concerning sign of rising credit stress, especially among the middle class. <\/p>\n","protected":false},"author":10,"featured_media":641769,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[9880],"tags":[17573,26],"class_list":["post-652927","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-wealth","tag-eighty20","tag-headline"],"_links":{"self":[{"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/posts\/652927","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/users\/10"}],"replies":[{"embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/comments?post=652927"}],"version-history":[{"count":4,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/posts\/652927\/revisions"}],"predecessor-version":[{"id":652935,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/posts\/652927\/revisions\/652935"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/media\/641769"}],"wp:attachment":[{"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/media?parent=652927"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/categories?post=652927"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/tags?post=652927"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}