South Africa

South Africa’s middle class feeling the pain

South Africa’s middle class is under severe strain from interest rates, as defaults on home loans have increased significantly over the past 18 months.

This is feedback from Experian Africa’s head of commercial strategy, Jaco van Jaarsveldt.

Van Jaasveldt told 702 that the total value of outstanding credit in the South African market is roughly R2.16 trillion – R1.16 in secured lending products and R1 trillion in home loans.

In addition, only 12% of South African credit-active consumers have access to that type of debt. Therefore, 80% of unsecured lending debt sits in the hands of 12% of the credit-active population.

He said Experian’s Consumer Default Index has deteriorated significantly over the past 18 months and can be seen as an accurate measure of consumer distress.

The Index looks at people who have defaulted beyond three months delinquent for the first time.

There has been a 70% year-on-year increase in these defaults among the most affluent segment of the market. “That is purely because of interest rates and secured lending exposure,” he said.

Van Jaarsvaldt said this emerging trend is similar to one in the late 1990s and early 2000s when interest rates were also very high.

“And the first reaction back then was for banks to repossess properties and, ultimately, banks just became the biggest holders of the property that you couldn’t put people in ever,” he said.

However, banks have learned from their mistakes and are now far less likely to take back properties if consumers default on their loans.

“People are struggling to hold onto their properties, and it’s absolutely because of the cost pressures,” he said.

“But the advice should always be to go and speak to your banks. They won’t make the mistakes they made in the early 2000s.”

The World Economic Forum’s (WEF) Future of Growth report recently revealed that South Africans are getting poorer as the country’s population grows while its economy stagnates, meaning there is less money to go around. 

The report showed that South Africa’s economy is not competitive on the global stage, as it is below average on three of the four key indicators that the WEF considers vital to economic prosperity. 

Of particular concern is how the country’s economic growth has failed to keep up with its population, making South Africans poorer. 

The South African Reserve Bank’s (SARB) Quarterly Bulletin from last year also showed that South African salaries have not kept pace with inflation over the past two years, resulting in declining purchasing power. 

In South Africa, real wage growth contracted in 2022 and 2023 as nominal wage growth moderated to below inflation due to a challenging domestic economic environment amid intensified load-shedding.

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