The recent repo rate hike by the South African Reserve Bank (SARB) raises more alarm bells for the most credit-stressed South Africans, says consumer strategy and research company Eighty20.
The group’s latest data points to Middle-Class Workers – a segment of 4.1 million adults earning typically between R8,000 and R30,000 per month – feeling the most financial strain.
For middle-class workers in South Africa, the average instalment-to-income ratio has increased by nearly 9% over the past year.
As a result, two-thirds (66%) of the average middle-class salary goes to servicing debt.
“Almost 75% of this segment is credit active, 30% of which have home loans and one-third of car loans in South Africa, this market segment will feel the pinch with even the smallest hike,” said the research firm.
According to Eighty20, the latest hike brings the prime lending rate to 10.75%, the highest it has been since 2009. The group noted that although the rates are high, the increased frequency placed an excessive strain on consumers at 3.5 percentage points in the past 14 months.
The group said that if someone took advantage of the lowest interest rate period in 2021 and purchased an R1.5 million home, they would have seen their monthly instalments increase by nearly R3,400 in just over a year.
“It is unlikely that their salary would have grown by 28% over the same period. This is the reality facing 2.2 million people with a home loan in South Africa,” said the group.
A bond is usually not the only debt a consumer has, they are also likely they have a car loan – which will further see an increase in monthly payments due.
While inflation appears to be down from the last quarter of 2022, it is still above SARB’s target ceiling of 6%, said Eighty20.
What is left in the middle-class South African’s discretionary income at the end of the month will likely go toward the back-to-school season with uniforms, books and school fees needing to be paid.
To illustrate the toll on middle-class consumers, Eighty20 outlined the changes to major household assets:
- VAF: The middle class holds 25% of all vehicle asset financing loans; these are set to default this quarter, up by 21%, while average instalments have increased by 11% year-on-year (R525).
- Bond: For those without a mortgage, their average bond instalment is up 15% (R452) on last year, with balances newly in default up 19%.
Neil Roets, CEO of Debt Rescue, echoed Eighty20 stating that the recent increase in interest rates is detrimental to South Africans who are paying off debts on property, vehicles, and credit cards.
He said that consumers are “hanging on by a thin thread, and there is no more room to manoeuvre.”
The latest data from BankservAfrica also shows that the average take-home salary in South Africa decreased by almost 5% in December 2022, marking the end of a difficult year for salaries.
To add fuel to the fire, economists and analysts expect a further rate hike later this year on top of the latest 25 basis points.
Below is a snapshot of the proportional expenditure categorically segmented based on variable household income, with financial pressure on the Middle-Class placing pressure on disposable income, said Eighty20.
Note: the figures below are the most up-to-date from the official Statistics South Africa site.
Wealthier segment
For the ‘Heavy Hitters’ making up the top 5% of the population, their credit load has also increased – this time to three times more than that of the middle-class segment.
“They have the largest span of incomes of any segment and, as a result, need to be divided into seven sub-segments with an average monthly income ranging from R30,000 to over R120,000,” said Eighty20.
Heavy hitters took advantage of low-interest rates, however, the lower sub-segment of the group is starting to feel the pinch of rising inflation with an 18% increase in home loan balances going into default.
When facing the bombardment of rate hikes, the wealthier end of this segment remains relatively immune as new defaults stay flat or in some cases, increase in some credit products.
“Despite this skewed experience, overall, Heavy Hitters have seen an 11% increase in total home loan balances year-on-year, combined with a 16% increase in average instalments (R1,083). Some 1.2% of all current home loan balances went into default this quarter, which is a significant 10% increase on last year,” said Eighty20.
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