Worrisome mortgage data sheds light on consumers’ financial situation in South Africa


The South African economy is slowly moving towards an economic recovery after the severe lockdowns imposed in the second quarter of 2020. However, the economic devastation of those lockdowns continues to reverberate, said Michelle Dickens, managing director of the TPN Credit Bureau.

Despite a pickup in the number of credit applications in the first quarter of 2021, an alarming 62.5% of those applications are rejected, indicating that many South Africans are still under considerable financial pressure, Dickens said.

There are many benefits to having a good credit history, including lowering the cost of borrowing, completing transactions, and ultimately growing the economy, she said.

According to the National Credit Regulator’s Credit Bureau Monitor, 61.8% of consumers are in good standing with their overall credit profile.

Collectively, the credit bureaus have records on 27.53 million active credit consumers, including profiles on their 85.09 million credit and service agreements. In total, the credit agreements reflect borrowings of R 2.04 trillion from credit providers.

“South African credit providers are used to providing between R 120 and 150 billion in loans per quarter, totaling the current exposure of R2 trillion in consumer debt,” Dickens said.

“This trend came to a halt in the second quarter of 2020 when new loans granted were reduced to R55 billion, a third of the value of what loan providers usually lend.”

Credit owed by consumers is made up of mortgages (51%), secured credit (22%), credit facilities (13%), unsecured credit (10%) and short-term credit (less than 0.1%).

Income plays a vital role in consumer credit. More than half of South Africans’ debt is used to finance homeownership in the form of mortgages, the majority being mortgages valued at over R700,000, TPN said.

On average, about 40,000 mortgages are issued each quarter. However, in the second quarter of 2020, the bureau said the number of mortgages issued fell to 12,000. The second half of 2020 saw a recovery, which culminated in the last quarter with 53,000 new mortgage loans granted. This figure stabilized in the first quarter of 2021 at 45,000 new mortgage loans granted.

Another interesting metric to consider is the number of sales transfers made on an annual basis, Dickens said.

In 2003, the number of residential sales transactions peaked at 475,000. This number halved to 229,000 during the 2009 financial crisis and then stabilized at an average of between 250,000 and 270,000 per year.

Between 2018 and 2019, it deteriorated again to 235,000. A further deterioration of 15% took place in 2020, bringing the number of transfers to 199,000.

Over the past decade, the number of cash sales has declined dramatically, Dickens said. However, with banks currently supporting property sales with mortgages, the number of residential property sales permitted through bonds has increased to 72%.

“The biggest long-term change currently taking place has been the dramatic decline in residential property sales transactions over the past decade,” said Dickens, noting that the number of residential property sales transactions has declined by almost 50% compared to the euphoria of the property. decade of the boom from 2000 to 2009.

“In the 1990s, 50% of residential sales were supported by mortgages. This figure rose to 60% during the decade of the real estate boom and to 62% between 2010 and 2019. During the pandemic, bonded sales represented 72% of residential sales. Not surprisingly, there has been a 15% drop in the total number of residential sales transactions for 2020, ”said the credit expert.

What this indicates, she pointed out, is that while mortgages are stable, there is a noticeable change in a decreasing number of cash transactions.

“The volume of mortgage loans is an indicator of economic stability. Before Covid, around 165,000 mortgage loans were granted each year. During the financial crisis of 2009, this figure fell to 140,000. Similar declines were observed in 2020. ”

Dickens said that during the financial crisis of 2009, only 40% of credit applications were rejected, while rejections peaked at 67.4% in the second quarter of 2020. “

Mortgages, despite their high value, are low volume and therefore only represent 5% of active credit contracts.

Credit facilities, including credit cards, store cards and bank overdrafts, are high volume but low in value and make up the majority of credit agreements, accounting for two-thirds of the number of active agreements.

Dickens also pointed to a notable shift in consumer credit over the past year as online shopping and payment for groceries and clothing drives activity in this sector of the credit market.

Financing capacity, she said, is a function of the credit health of consumers. This was already on a downward trajectory, going from 62.7% of consumers in good standing at the end of 2018, to 57.5% at the end of 2019.

According to TPN, only 89% of monthly bond payments were paid on time. Most consumers tend to prioritize their monthly deposit payments and pay on time. So it’s no surprise that bond repayments subsequently improved, with 91% being paid on time in the first quarter of 2021, he said.

In the same way that mortgage payments suffered during the hard foreclosure, the number of consumers renting also suffered with just 73.5% in good standing during the hard foreclosure. This figure subsequently improved to 80.34% of consumers in good standing.

By the end of the payment holidays, more and more consumers fell back into arrears of three months or more, with the number of consumers in good standing declining to 61.8% in the first quarter of 2021.

“What these numbers indicate is that the local economy is in desperate need of creating more jobs so consumers can improve their creditworthiness,” Dickens said.

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