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.<\/p>\n
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.<\/p>\n
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.<\/p>\n
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<\/strong>.<\/p>\n 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.<\/p>\n 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.<\/p>\n This is the current credit health of the four main market segments assessed by Eighty20:<\/p>\n Mothers of the Nation<\/strong><\/p>\n Mass Credit Market<\/strong><\/p>\n Middle-Class Worker<\/strong><\/p>\n Affluent \u2018heavy hitters\u2019<\/strong><\/p>\n Key problem areas<\/strong><\/p>\n 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.<\/p>\n 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.<\/p>\n 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.<\/p>\n “Nearly 99% of home loan balances are held by the heavy hitters (76%), middle-Class workers (17%) and retiree (6%) segments,” Eighty20 said.<\/p>\n “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%.”<\/p>\n 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.<\/p>\n 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.<\/p>\n 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.<\/p>\n 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.<\/p>\n “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.<\/p>\n Heavy hitters currently have a 60% instalment-to-income ratio. For all credit-active South African\u2019s this ratio sits at 44%.<\/p>\n “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.<\/p>\n “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\u2019s economic woes,” the group said.<\/p>\n The biggest concern for middle-class South Africans is how much they are struggling to pay VAF and home loans.<\/p>\n “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.”<\/p>\n For the most affluent, this segment accounted for all of the growth in total home loan balances, with average instalments up YoY by 27%.<\/p>\n 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.<\/p>\n
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