More South Africans unable to repay home loans
South Africans are increasingly less able to repay their debts, such as home and car loans.
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The number of consumers unable to repay their home loans is increasing rapidly in the current high interest rate environment. They also battled to pay other debts during the second quarter of the year. Credit extension has also slowed down and when households cannot borrow more, they cannot consume more, decreasing overall household demand.
Economic research group Oxford Economics Africa said last week private sector credit growth moderated more than expected in July also, signalling that the demand side of the economy is experiencing strain.
“South African consumers have a tough time contending with the current high price environment, compounded by tight monetary policy, a lethargic economy and high unemployment. Conditions are unlikely to get easier soon, with monetary policy expected to remain tight into 2024,” Jee-A van der Linde, senior economist at Oxford Economics Africa, says.
According to the South African Reserve Bank’s (Sarb) latest report on credit extension, growth in credit extended to households came in at 6.1% in July compared to a year ago, 0.4 percentage points lower than in June.
Eighty20’s Credit Stress Report for the second quarter, that probes consumer credit behaviour and points out key events from that affected the current economic landscape, shows that credit defaults continued to increase, especially with secured debt.
Across most credit metrics, the situation worsened in the second quarter with the number of defaults and overdue balances continuing to escalate. Eighty20’s research uses the Rate of New Default (RND) metric to measure credit stress. RND is the percentage of current loan balances that went into default this quarter.
The change in RND (CRND) is the percentage change in the current quarter’s RND relative to the RND in the same quarter a year ago. The CRND for all loans increased by 29.2%, its third consecutive quarter of double-digit increases. This significant increase shows an escalating trend with the CRND on all loans up 15.6% in the fourth quarter of 2022 and 17.4% in the first quarter of this year.
The report shows that home loans in particular deteriorated, with the CRND for home loans increasing by 52%, with a 29% annual increase in average mortgage instalments. Compare this to the previous quarter, when the CRND for home loans was at 28% with a 2% annual increase in average mortgage instalments.
“This situation is particularly prevalent for the top 5% of South Africans who have 75% of all home loans by value. Within the Eighty20 National Segmentation, this wealthier heavy hitters segment have a CRND for home loans at 61%, vehicle asset finance at 25%, with credit card debt up to 23%,” says Andrew Fulton, director at Eighty20.
According to the report, company financial results from the second quarter also painted a similar picture for the banking sector. Standard Bank’s Personal & Private Banking division reported a 26% increase in its impairment charge for the half year, while ABSA saw credit card impairments in its Everyday Banking division surge by 70% and Nedbank’s rising to 57% for the first six months of 2023.
African Bank fared much worse with impairment charges on loans and advances growing by 240%. Grocery retailers echoed the gloomy outlook, with both Pick n Pay and Shoprite pointing to low consumer volume growth, coupled with the impact of the hundreds of millions of rands spent on keeping generators running.
Eighty20’s analysis highlighted a significant difference in the credit environment in the provinces. The latest StatsSA Labour Force Survey revealed the official unemployment rate in the Western Cape is 20.9%, significantly lower than Gauteng at 34.4% and the country at 32.6%. In addition, job growth in the Western Cape had year-on-year growth of 15.7%, compared to 4.2% for Gauteng, the same as the figure for the country.
The Western Cape also had the lowest home loan default figure in South Africa with 2.2% of home loans granted since 2020 going into default, compared to 3.8% in Gauteng (second highest) and a national average of 3.3%.
Fulton says semigration likely contributed to the value of all home loans in the Western Cape increasing by 67.5% since the third quarter of 2019, while the value of the average home loan increased by 26%, more than any other province. Over that same period, the value of all home loans in Gauteng increased by 37% and the average home loan by 17%.
Eighty20’s segmentation from the fourth quarter of 2020 to the fourth quarter of 2022 showed a large increase in heavy hitter home loans per quarter during the lowest interest rate environment South Africa has seen in decades.
New home loans in the Western Cape peaked for this segment at nearly 5 500 new loans in the third quarter of 2021, 73% higher than the third quarter of 2019. However, Fulton says with the relentless interest rate hikes in the past 18 months, that number is now down by 32% from its peak.
Although this trend was also visible across all provinces, the proportion of heavy hitters taking out mortgages in the Western Cape now compared to four years ago has gone up by 10%, compared to a decrease of 5% in Gauteng.
The report shows that the was a consistent reduction in the number of secured loans certain customer segments due to consumers scaling back on the number of loans they hold or defaulting on their loans.
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