South African citizens of ‘luxury living’ fall behind on home and auto loans – here’s what they’re paying

New data from the Experian credit bureau shows the first-time loan default rate increased in the first quarter of 2021, as South Africa’s wealthier consumer segments continue to be hit hardest by macroeconomic conditions.

Experian’s Consumer Default Index (CDI) in South Africa deteriorated from 4.02 in December last year to 4.33 in March 2021, as people struggled to track their payments linked to increased economic activity following the easing of strict closures towards the end of 2020.

“This deterioration is mainly due to the increase in business volumes during the latter parts of 2020 when the strict foreclosure rules were relaxed at the end of the 2nd wave of Covid – particularly for credit cards and personal loans during the period of Black Friday and the holiday season in 2020, “said Jaco van Jaarsveldt, director of business intelligence at Experian Africa.

“The combination of the openness of the economy and the extended ‘month’ of Black Friday has resulted in an increase in the incidence and value of early payment defaults among South African consumers.”

He specified that the decrease was the result of the collective worsening of all the products making up the CDI, with the exception of mortgage loans and loans to individuals. Home loans showed a slight improvement from 1.86 in March 2020 to 1.73 in March 2021 as consumers continue to focus and invest in their home as it has increasingly become a place hybrid work.

“Personal loans continue to show an improvement from 13.22 in March 2020 to 11.20 in March 2021 due to tighter lending criteria imposed before Covid, exaggerated by very tight business terms during the various lockdown periods. “

Despite these improvements, CDI recorded a year-over-year deterioration, due to the deterioration in auto loans (3.67 in March 2020 to 4.1 in March 2021), credit cards (6.74 in March 2020 until 8.39 in March 2021) and personal loans. (9.67 in March 2020 to 10.42 in March 2021).

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

Likewise, consumers are increasingly accessing personal loans and using available revolving credit card facilities to cover daily living expenses during these difficult times, which began long before the Covid pandemic and were and are. still supported by an economy which, while recovering faster than expected, still suffers from structural problems that must be addressed before long-term sustainable growth can be achieved.

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

“With a Average opening balance of the mortgage over 1.2 million rand (54% owning a house and 25% owning several properties) and an average opening balance of the vehicle loan greater than R450,000, this group is highly exposed to guaranteed credit resulting in a deterioration of the CDI from 2.65 in March 2020 to 3.42 in March 2021.

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

The money-conscious majority, which constitutes the majority of South Africa’s credit-active population (~ 40%), saw their CDI improve 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 balance for auto loans is – 160,000 rand), exposure to unsecured facilities like personal loans and Retail credit is high, these consumers holding – 30% of the market in these two products. The drastic improvement in retail CDI was the driving force behind the net improvement in FAS 4 CDI.

The index examines six macro segmentation of financial affluence (FAS) in the analysis of its data:

  • Luxury life (2.5% of the working population on credit) – Well-off individuals representing the upper strata of South African society with the financial freedom to afford expensive homes and cars;
  • Ambitious success (9.3% of the active credit population) – Young and middle-aged professionals who can afford a high standard of living while pursuing their career, buying property and starting a family;
  • Stable dependents (7.2% of the labor force in credit) – Young adults who rely on financial products to make ends meet or to cover specific needs such as clothing and school fees, or seasonal luxuries;
  • Money conscious majority (40.0% of the working population in credit) – Older citizens who know where and how they spend their money; often looking for our financial products to cover basic needs or for unforeseen expenses;
  • Hard life (24.6% of the active population credited) – Financially limited because salaries are below national tax thresholds, they spend their money on basic necessities such as food and housing;
  • Ardent youth (16.4% of the active population credited) – Very young citizens new to the labor market; this mixture of laborers and perhaps working students earn low wages and limit themselves to spending on non-essential goods.

To read: A third of the South African middle class on the verge of being wiped out: lender

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