Media: Debtors Struggling under the Weight of Debt
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THE SUNDAY INDEPENDENT - INCORPORATING BUSINESSREPORT
SEPTEMBER 30, 2007 - Page 3
Time to swap the 4x4 for something affordable BY EDWIN NAIDU. Results on instructions is reported on a continuous basis and we aim at a turnaround time for first results within a 48-hour time frame.
South Africa’s consumers are struggling under the weight of debt, with many battling to keep up with bond and vehicle repayments and ending up with their homes and cars being repossessed.
The effects of six interest-rate hikes in the past year are starting to kick in, with repayments on debt costing at least a third more.
The Reserve Bank has hiked the repo rate (the amount at which it lends money to the banks) by 300 basis points to 10 percent since June 2006 in an effort to curb inflation.
Auction houses and debt collectors have confirmed an increase in the number of repossessed homes and vehicles for sale throughout the country since the beginning of the year.
Standard Bank said it had made provision this year for losses of up to R1,7 billion in home loans through consumer short-payments, while a strike by the deeds office in June has cost the bank R1,1 billion in unprocessed mortgage bonds.
The bank said the interest rate outlook would damp consumer credit demand.
Goolam Ballim, a Standard Bank senior economist, said consumers were starting to feel the effects of the Reserve Bank’s tighter monetary policy.
“Rising interest rates will make it more difficult for consumers, because debt will become more difficult to sustain,” he noted.
“Higher interest rates, increased transport and food costs, slower growth, and increases in household debt compared to income all combine to make it tough for consumers.”
Ballim said that when individuals faced financial difficulties, they first defaulted on credit-card repayments, then on their vehicle and, finally, on their home loan, because the last thing anyone wanted was to lose their home.
Statistics South Africa said on Thursday that more people went bankrupt in August this year than in the same period a year ago. It said it had recorded 66766 civil judgments for debt, amounting to R537 million, in July.
In addition, there had been a steady increase in the number of civil judgments for debt since February – as opposed to a decreasing trend over the past few years.
Household debt is reportedly close to 80 percent – almost double what it was in 2003 – meaning that for every R100 000 an individual earns, R80 000 is spent servicing debt.
Richard Angus, the chief operating officer at First National Bank home loans, said households were under pressure because of the interest-rate hikes. He said defaulting loans – where three instalments had been missed – had increased from 0,9 percent a year ago to 1,8 percent.
“While the majority of households have adapted their spending habits to allow for increased mortgage repayments, the bank has experienced increased arrear levels,” he said.
Andrew Marshall, the chief financial officer of WesBank car finance, said repossessions had increased: “We are currently repossessing approximately 1700 vehicles a month, which is up from about 1100 to 1400 a year to 18 months ago.”
Jacques Taljaard, the owner of a national debt-tracing agency, said financial institutions and retail, clothing and food chains were facing the consequences of freely handing out credit before the National Credit Act came into effect on June 1 this year.
“We have seen an increase in defaulting on new debt – accounts that have been running for six to seven months,” said Taljaard.
“Our debt collectors are most busy when it comes to repossessing of cars … consumers have extended themselves and in some cases have to swap the Jeep Cherokee for something smaller.”
South Africans face another anxious wait as the Reserve Bank meets in two weeks’ time with economists split over whether it will hike the repo rate again.
