The TransUnion Consumer Pulse Study for the second quarter of this year showed that 56% of consumers said they were likely to default on at least one of their bills and loans in the next three months.

More than half of the households surveyed (52%) said they would have to cut back on discretionary spending because of continued inflationary pressure.

Lee Naik, chief executive of TransUnion South Africa, said the ongoing rate hikes meant higher monthly repayments on debt obligations on top of sharply increased food and fuel prices, which combined to paint a worrying credit picture:

Although most consumers (93%) surveyed believe access to credit and lending products was important to achieve their financial goals, less than half (42%) reported they had sufficient access to credit.

More than half (51%) said they had considered applying for credit or for refinancing existing credit, but had decided not to.

Most consumers (89%) said monitoring credit was at least moderately important, with 62% saying they monitored their credit at least once a month.

Although the decision to hike the repo rate by 75bps seems to have been a bit of a market shock, a steeper hike was expected by the property market.

Samuel Seeff, chairperson of the Seeff Property Group, said although the increase would affect the cost of mortgages and debt, it was not likely to affect underlying demand in the market.

“The reality is that the weaker rand and inflation spike to 7.4% has accelerated rate increases. We are likely to see more aggressive hikes in September and November with the prime rate back to the pre-pandemic level of 10% by January 2023, if not sooner,” Seeff said.

An FNB calculation shows that if you had a R1-million home loan at prime plus 2%, your monthly repayment of R9,885.43 will now increase to R10,390,88.

Similarly, WesBank calculated that a consumer with a five-year car loan of R350,000 at prime will see their monthly instalment increase from R8,214.19 to R8,343.97 on the back of the interest rate increase. (The WesBank calculation includes monthly admin and initiation fees, but does not reflect a deposit or balloon payment.)

Ayanda Ndimande, head of Sanlam business development for retail credit, said increasing interest rates would apply even more pressure on consumers as credit became more expensive.

“The cost of goods and services, which are already high, will increase further while consumers’ income is not increasing, meaning that basic income is being diminished,” she said. “What consumers can do is curb expenditure on luxury goods and consider lifestyle changes such as downgrading to a smaller car and/or home.”

Ndimande advised consumers to negotiate interest rates on any new credit agreements so they would be better able to manage repayments. DM168

This story first appeared in our weekly Daily Maverick 168 newspaper, which is available countrywide for R25.