2022 was the year that left the middle class seriously in debt as rising fuel and food prices ate into their earnings, forcing them to take out more credit. They now spend 66% of their income paying off loans. South African consumers were hit with two rate hikes in the third quarter, with the prime lending rate 3.25% higher than this time last year. This means people with a home loan of Rs 1.5 crore had to come up with an extra Rs 3,000 a month just to cover their dues. And that was before the latest 75 basis point increase…
2022 was the year that left the middle class seriously in debt as rising fuel and food prices ate into their earnings, forcing them to take out more credit.
They now spend 66% of their income paying off loans.
South African consumers were hit with two rate hikes in the third quarter, with the prime lending rate 3.25% higher than this time last year.
This means people with a home loan of Rs 1.5 crore had to come up with an extra Rs 3,000 a month just to cover their dues. And that was before the latest 75 basis point increase in the repo rate on November 24.
According to the Eighty20 / XDS Credit Stress Report for the third quarter, economic forces are starting to put significant financial pressure on middle-income consumers, especially if they have vehicle financing and home loans. By the way, this is also the group that pays most of the country’s taxes.
The report highlights the impact of economic forces on South African consumers, with a particular focus on consumer credit behaviour.
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Consumer segments according to income
Middle-class workers make up the 4.1 million credit-bearing and middle-income working population with families, including 621,000 (down 40,000 from the third quarter of 2021) who have home loans and 630,000 (down 60,000 from in 2021) vehicle financing.
These consumers are in financial difficulty, with new defaults or arrears increasing by 19% from 2021 and vehicle finance defaults by 21%.
Total vehicle finance balances were equivalent to 55% of their home loans.
In the mass credit market, which is made up of the employed lower middle class, 100,000 have a home loan and fewer have vehicle finance, but 7.5 million have retail credit, 3 million have unsecured loans and 1.5 million have a credit card that they use to survive with average payments increasing by 41% and overdue balances by 26%.
This segment has R70 billion in unsecured debt, with 1 in 25 of all unsecured loans in default.
The wealthiest 5% of the population are mostly men, with more assets than any other segment who mostly bought while interest rates were low, as evidenced by total loan balance growth of 10% year-on-year, which was 4% more. that the growth of the number of individuals in this segment.
Its total home loan balances rose 11% compared to the same quarter in 2021, while its average installments rose 16%. About 1.2% of all current home loan balances went into default this quarter, a 10% year-over-year increase in the rate of new defaults.
The segment that is least distressed about their finances are comfortable retirees, a group of older, credit-ready, asset-rich ex-professionals and middle-class consumers. This is also the only group to benefit from higher interest rates, while their average installments-to-income ratio increases by 8% from 39.1% to 42.3% year-on-year.
The rate of new delinquencies for this group fell more than 8% in the third quarter, while credit card loan balances rose 12% and average payments rose 7%. Its average unsecured fees increased 10% year over year.
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These groups have the highest proportion of arrears.
The segments with the highest proportion of defaulters are the nation’s mothers, male abusers and the mass credit market with more than 50% of consumers with at least one loan in arrears. All these are lower income segments with unsecured retail credit.
The second group, between 30% and 40%, are middle-class workers, the elderly and students. Among the 75,000 retail loans held by students, 16% are in default, similar to the rate of wealthy and comfortable retirees.
The number of consumers in the debt relief segment decreased by 63,340 to 10.3 million and now represents 57.6% of all consumers with unsecured credit and 9.2% of the total loan value, while that 233 055 consumers earning below R7 500 per month do not qualify. debt relief because they have an unsecured debt of more than Rs 50,000. People earning less than Rs 7,500 per month with unsecured debts of less than Rs 50,000 can apply to have their debt suspended or extinguished under an amendment to the National Credit Act.
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Retail sales index
The impact of the financial difficulties can be seen in the activity of retail sales which slowed down in the third quarter, with a decrease of 1.9% compared to the second quarter.
The Eighty20’s mall visit index for 20 selected malls also decreased by 2.4% and the dwell time index by 0.2%. These shopping centers represent 47 million visits, down from 48 million in the previous quarter.
