Are home loans being propped by unsecured debt?

8 October 2014

The National Credit Regulator’s (NCR) latest releases, the “Consumer Credit Market Report” (CCMR) and the Credit Bureau Monitor (CBM), based on the data submitted to the NCR by registered credit providers and credit bureaus respectively, highlighted the outstanding trend of the improvement in credit mortgages, as well as the increase in the number of consumers pursuing assets and building credit.

90.62% of the total mortgage repayments were up to date in the quarter ended June 2014. In addition, the total mortgage gross debtors book increased by 4.4 percentage points year-on-year.

Although these statistics are less troublesome, what about unsecured credit crisis South Africa currently faces? Will this have an impact on the amount mortgage repayments up to date next quarter?

According to the NCR, although the unsecured credit gross debtor’s book decreased from R172.97 billion for March 2014 to R172.20 billion for June 2014, a quarter-on-quarter decrease of 0.45%, unsecured credit still increased from R18.82 billion for March 2014 to R79.32 billion for June 2014, a quarter-on-quarter increase of 2.64%.

Ian Wason, The CEO of the Award Winning Debt Management Company DebtBusters, states, “The composition of DebtBusters debt book has evolved over the last three years to reflect the change in the South African lending landscape towards unsecured lending. Unsecured debt has grown from 36% to 50% of our book, which mimics the growth in unsecured lending in the industry. In addition, unsecured lenders’ debt grew at 172% per annum, which is double the rate of DebtBusters total debt growth of 84%.”

Ian Wason goes on to say, “The big banks have scaled back on lending much earlier than unsecured lenders. Banks’ share of DebtBusters debt book reduced significantly, signalling the pulling back of lending: from 75% to 57% of overall debt book and from 69% to 49% of unsecured debt book.”
“Consumers access to credit will decrease significantly as the banks continue to tighten up on credit scoring,” says Wason.

But what does this mean?

“The DebtBusters clients’ original debt repayment to net monthly income ratio increased from 67% to 104% quarter-on-quarter, which reflects the increasing strain the South African consumer is under. Consumers previously using credit as a means to service their existing debt comprising personal loans and mortgages won’t be given ‘life boat’ credit loan to help them keep their heads above water. Payday loans have grown at over 1,000% per annum (albeit from a small base) on DebtBusters book, which indicates the South African consumer is under increasing pressure to borrow for basic necessities such as food and clothing. With regards to mortgage repayments, our worry is that mortgage repayments are currently being kept artificially high due to mortgage holders borrowing unsecured debt to keep their repayments. What happens now that the credit ‘taps’ are being turned off?

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