Wealthy South Africans Falling behind on Home and Car Loans – Here’s What They’re Paying

The Experian credit bureau has released new data showing how the pandemic and the lockdown have impacted affluent South Africans.

The group said that although the lockdown initially affected poorer South Africans, its Consumption Defaults Index (CDI) shows richer South Africans are no longer immune to financial hardship.

The Experian Consumer Default Index (CDI) is designed to measure the continued default behavior of South African consumers with home loan, car loan, personal loan, credit card and retail loan accounts.

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) – Wealthy people 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 the wages are lower than the national tax thresholds, they spend their money on basic necessities such as food and housing;
  • Young ardent (16.4% of the active population credited) – Very young citizens who are 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.

Jaco van Jaarsveldt, Director of Decision Analysis at Experian Africa, said Affluence Macro-Financial Segmentation (FAS) Groups 1 and 2, with the highest exposure to secured loans, showed the highest exposure to secured loans. most significant deterioration between December 2019 and December 2020.

“It is clear to see that there is a significant impact on the Luxury Living group.

“With an average opening balance of a mortgage in over 1.2 million rand – 54% owning a home and 25% owning multiple properties – and an average opening vehicle loan balance greater than R450, ooo.

“This group is highly exposed to guaranteed credit, which causes the consumer default index (CDI) to deteriorate from 2.40 in December 2019 to 2.72 in December 2020.”

Van Jaarsveldt said this deterioration is largely influenced by their high exposure to auto loans, in particular, where the Luxury Living group accounts for over 30% of the market.

“Similar to the Aspirational Achievers group, with an average opening balance on mortgage loans of around R550,000 (51% own at least one house) and an average opening balance of the vehicle loan greater than 250,000 rand, is also exposed to guaranteed credit leading to a deterioration of the CDI from 3.39 in December 2019 to 3.67 in December 2020.

“The ambitious represent 45% of the auto loan market and 35% of the personal loan market, which makes them very exposed in the two types of products which deteriorated in December 2020.”

The Money Conscious Majority group, which constitutes the bulk of South Africa’s active credit population (around 40%), also experienced a significant deterioration in its CDI from 5.71 in December 2019 to 6.05 in December 2020 .

Although exposure to secured credit facilities is low in this group – 25% own a property and the average opening vehicle loan balances are approximately R160,000 – exposure to unsecured facilities such as personal loans and credit to individuals is very high, with these consumers representing around 30% of the market for these two products.

The deterioration of the CDI of personal loans has had a particularly negative effect on these consumers.

Van Jaarsveldt said the Stable Spenders group recorded a significant improvement in their CDI, from 7.35 in December 2019 to 5.98 in December 2020.

Given that these consumers typically earn below-average incomes and are often highly exposed to retail credit, it appears that stable spending in particular is less likely to take out new loan products, which helps them better honor their existing debt commitments.

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