Here’s how much credit-hungry consumers in South Africa owe on their homes and cars

Consumer credit reporting agency TransUnion has published the findings of its Q1 2022 South Africa Industry Insights Report showing that with rising stagflation risks on the horizon, characterized by high inflation combined with high unemployment and stagnant demand, the consumer credit industry is facing new challenges to return back to pre-pandemic norms of activity.

The report shows notable increases in unsecured lending originations – which measure new accounts opened and is a function of both consumer demand and lender willingness to advance credit—indicating a renewed demand for credit by consumers. However, outstanding credit balances declined across almost all major consumer lending categories year-on-year (YoY) in Q1 2022.

TransUnion’s Q1 Consumer Pulse Study showed that almost a third of consumers (32%) experienced a decrease in household income. And looking forward to the next three months, more than half (53%) said they plan to decrease discretionary spending.

In the secured lending categories (home and vehicle finance loans) both originations and balances were down. “Here the drivers for the declines in outstanding balances were different from the declines in unsecured lending balances, the credit agency said.

For home loans there has been an influx of originations for lower-value homes – and thus loans, with the new average loan amount down -5.8% YoY in Q4 2021, said TransUnion.

“In the auto industry, there is a trend of consumers settling vehicle finance loans earlier by selling ‘extra’ vehicles due to rising prices of quality second-hand cars, with the Q1 2022 TransUnion VPI showing used vehicle price inflation increasing from 3.7% to 7.9%,” it said.

Lee Naik, CEO of TransUnion Africa, said: “We’re still seeing a mixed picture of recovery. The South African consumer credit market was still trending back to pre-pandemic levels of activity when the shock of inflationary pressures associated with the conflict in Eastern Europe hit.

“Although some sectors of our economy, such as mining, have benefited from increased demand, overall consumer sentiment and household disposable incomes have been negatively impacted. Based on our latest insights, it’s clear that the South African consumer credit market recovery will be prolonged and remains volatile.”

Vehicle finance

Origination growth remains low as the global automotive industry had another challenging quarter hampered by the shortage in inventory. The shortage in supply of vehicles and the rise in inflation caused prices to increase further for both new and used vehicles, said TransUnion.

Vehicle finance origins are down 7.4% YoY, to R135,000 in Q4 2021. At current levels, origination volumes are 11.1% below pre-pandemic levels, the credit specialist said.

“The decline in originations is reflected across all age groups except for Gen Z consumers, which registered growth albeit from a much lower base. Originations for Millennials and Gen X consumers, who represent 82% of all origination volumes, were down 4.2% and 9.7% you.”

The average new loan amount increased by 8.6% YoY to a new high at R354,000the credit expert said.

The reduction in the number of accounts (down 4.7%), outstanding balances (down 11.4%), and average balances (down 7.0%) was due to multiple factors: A decline in business from new vehicle sales resulting from supply shortages.

Consumers capitalizing on the continued price increases in the second-hand vehicles market has resulted in some households disposing of their extra vehicles for value and settling their finance facilities.

Home Loan

Home loan origination volumes for the period remained relatively flat despite what is still considered a low-interest-rate environment.

Home loan origination was relatively flat, down 0.7% YoY and 3% quarter over quarter to R53,300. While declines were marginal, at current volumes, originations in Q4 2021 remain similar to pre-pandemic levels, said TransUnion.

Origination growth across the risk spectrum was mixed, with prime and above risk tiers, all registering reductions whilst still accounting for 69% (down 5% YoY) of total origination volume.

Below prime borrowers accounted for 31% (up 5% YoY) of total origination volume, primarily driven by subprime borrowers (up 27.3% YoY). From an age distribution point of view, origination volume from Millennials was down 9.1%, with Gen X also down 1.6% YoY.

Only Gen Z (up 42%) and Boomer (up 7.6%) cohorts recorded high growth figures, said TransUnion.

TransUnion said that the average new loan amount declined by 5.8% YoY and can be attributed to the increase in origination volume from lower-value homes. Despite the number of accounts increasing, both outstanding and average balances declined significantly YoY.

The cause for balance level reductions may be due to a few factors: An increase in the origination of lower-value homes.

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