Even the wealthy are struggling to keep up with mortgages
According to the latest information on consumer credit behaviour for Q2 2016*, released by Compuscan, it is not only those with lower incomes that are struggling to make ends meet. Looking specifically at mortgages, Compuscan confirms that the number of these accounts that had adverse enforcements listed on them as at the end of Q2 2016 increased by 26% from quarter-to-quarter. Compuscan further reports that even those with mortgages of R3 million and more had been missing payments.
Comments Jacobus Eksteen, Senior Data Analyst at Compuscan: “In the first quarter of the year, we noted that consumers were struggling to keep up with their vehicle and asset finance loan repayments. The fact that the seconds quarter’s data indicated that consumers were struggling to make their mortgage payments is extremely concerning. On the whole, consumers tend to prioritise their mortgage payments as this type of debt is usually taken very seriously by consumers. They have a lot more to lose if they don’t make payments on this type of account, so the trends we’ve seen in our data leads us to believe that consumers have really been feeling burdened financially.”
Compuscan confirmed that the number of mortgages that had been subject to adverse enforcements increased from 18 500 to 23 300, from Q1 2016 to Q2 2016. The bureau’s data furthermore indicated that the number of mortgages that were three or more months in arrears increased by 7% from quarter to quarter.
While many consumers across the board seem to be in tougher financial positions than preceding months, consumers in lower income groups understandably feel the pinch the hardest. According to Compuscan’s data, approximately 39% of mortgages to the value of R300 000 or less had been subject to adverse enforcements as at the end of Q2 2016. Although this balance group had the highest percentage of accounts with adverses, the table below indicates that noteworthy percentages of mortgages of higher values had also been subject to adverse enforcements.
Adverse accounts: mortgages
Eksteen continues: “We noted that VAF loans of a medium value, from R101 000 to R250 000, had been subject to the highest percentage of adverse enforcements, followed by those from R250 001 toConsidering the vehicle and asset finance (VAF) loans listed on the bureau, Compuscan previously reported that there was a 19% increase from Q4 2015 to Q1 2016 in accounts that were three or more months in arrears. Although there was a less significant increase (9%) in these accounts that were three or more months overdue from Q1 2016 to Q2 2016, the trend remains a concerning one.
R400 000 (see table below). Based on this information, we can fairly confidently surmise that that even those who fall within higher income brackets are not necessarily coping financially. While there may be various reasons for consumers missing payments, it is likely that economic factors that affect the general cost of living have played a significant role.”
Adverse accounts: VAF loans
According to Compuscan’s data, the number of consumers that had been declared over-indebted and were part of the debt counselling process as at the end of Q2 2016 had increased by 8% from quarter to quarter to over 158 000 consumers. There was additionally a 6% increase in the number of individuals whose worst position was an adverse status on one or more of their accounts, as well as a 7% increase in the number of accounts that were three or more months in arrears. Rather notably, there was a 20% increase in the number of revolving loans with adverse statuses.
The data further revealed that of the approximate 70 million accounts that were open on the bureau as at the end of Q2 2016, only about 47 million of these had been paid up to date.
Compuscan reiterates that it is essential for consumers to prioritise their spending wisely according to their budgets, and always in light of their needs rather than their wants. Because there are consequences to skipping payments, including a decreased credit score, financial penalties, increased interest rates, legal action and an inability to obtain further credit, it is important that credit-active consumers place account repayments high on their priority lists. It is likewise important that they don’t over extend themselves by taking out unnecessary loans or by being dishonest during the affordability studies performed by credit providers when extending new loans.
The following advice may assist consumers in better managing their debt:
1. Draw up a budget and stick to it. Include a debt checklist in order to prioritise which debts to pay off first.
2. Identify areas where you overspend and limit those expenses. Avoid spending money that you don’t have on goods or experiences that are not absolutely necessary (things you simply want).
3. Close accounts that are unnecessary and that might tempt you to spend beyond your means. Make a decision to limit yourself to only a few accounts.
4. Contact your credit providers to negotiate your payment plan if you are in financial difficulty. Seek professional guidance on managing your debt if needed.
5. Get a copy of your credit report to assess your financial health. This can be done via mycreditcheck.co.za. It is recommended that this is done on a monthly basis but should be done at least once a year.
* This data forms part of a detailed synopsis submitted by Compuscan to the National Credit Regulator (NCR).