South Africans are doing everything they can to make ends meet, even if it means turning to unsecured and non-bank credit to fill the gaps between their salaries and monthly expenses.
The latest SARB’s Quarterly Bulletin data reveals that people’s salaries are only making up about 70% of the money they need each month; the remaining 30% is coming from non-labour income, which includes capital gains, dividends, interest, transfer payments, gifts, and prizes.
FNB’s Property Barometer for April 2023 also shows that real compensation of employees – or labour income, declined across almost all sectors in 2022, and continues to fall below pre-pandemic levels.
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This, says economist Siphamandla Mkhwanazi, is because wages are still lagging behind inflation.
Of particular concern is the fact that more households are now “steadily shifting away from asset-backed credit and toward unsecured credit”.
“In addition, households are now increasing their uptake of non-bank credit, which is generally pricier, but arguably easier to access.”
While some of this reliance on unsecured credit is for the purposes of installing alternative energy sources, Mkhwanazi says the level of non-bank borrowing also “likely reflects distressed borrowing by households with more constrained budgets”.
“These trends amplify risks of credit defaults, particularly in the non-bank sector and among lower-income segments.”
He explains that the move away from asset accumulation is weighing on household wealth levels, and that household net wealth, defined as the value of household assets minus outstanding liabilities and used as a proxy for household balance sheet strength, is receding.
“In addition, household savings accumulated during lockdown, have now been depleted. This implies that households are left with limited buffers to weather the economic downturn, and thus a less supportive home buying environment.”
Results from the FNB Estate Agents Survey also indicate that incidents of downscaling are more prevalent in lower-priced segments.
“As such, we maintain our view of slower house price growth of around 2% this year,” Mkhwanazi says.
Rhys Dyer, chief executive of ooba Home Loans, says this subdued growth in property prices, combined with the fact that interest rates are now close to peaking and banks are willing to continue extending credit to homeowners, does, however, mean that conditions remain favourable for those with a long-term view to purchasing property .
Still, while the market remains competitive and “has recorded steady activity levels in the first quarter of 2023”, multiple recent interest rate hikes have had a dampening impact on consumers whose disposable income is coming under pressure.
“This is evident in the drop in home loan application volumes observed by ooba Home Loans, aligning to the accelerated series of rate hikes that began in November 2021 and have bumped up the prime lending rate from 7% to its current level of 11.25%.”
He says application volumes recorded in the first three months of this year are down 20% from the same period last year, and that the value of ooba’s instructed bonds are down by the same percentage from the first quarter 2022.
“However, the good news is that the current application volumes resemble those received in Q2 and Q3 ‘19 (when prime was 10%), leading us to believe that this dip is part of the natural interest rate cycle.”
IOL BUSINESS