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Johannesburg – Growth in household credit slowed down significantly, making it one of the weakest household credit cycles in history, according to a report released by Momentum Investments.
According to data from Momentum Investments and the South African Reserve Bank (Sarb), rates fell from 3.9% year-on-year (y/y), recorded in January 2014, to its slowest recorded rate at 1.4% in July 2016 - weaker than the long-term average annual growth rate of 11.4%.
As a result, the slowing growth in household credit has impacted the growth of private sector lending rates. Growth in July 2016 was reported at 6.8%, compared to the previous year. This is lower than market expectations of 7%.
The reduced growth in household credit reflects the financial pressures households are facing. Consumer pockets feel the impact of the cumulative 200 basis-point rate hikes by Sarb since 2014, accompanied by rising inflation and the 11 2000 jobs lost in the past year.
There is a higher level of indebtedness, especially among low income earning consumers. Additionally, lending criteria have become stricter.
The National Credit Regulator report in March 2016 showed that fewer consumers are applying for credit, with a 3.9% drop in applications compared to the previous year.
The report also shows that fixed-rate unsecured debt has grown at an average annual rate of 17% since January 2008, especially among low income earners following the global financial crisis. Conversely, high income earners chose to reduce their outstanding mortgages and reduce debt.
Growth in household mortgages fell to a yearly average of 5.9% following the financial crisis, compared to a 19.7% annual growth rate between 1995 and 2007. But since 2014 growth in household mortgages has been recovering slowly, rising from 2.3% y/y in 2014 to 3.2% in 2015.
Poor car sales reported by the National Association of Automobiles SA show that growth in vehicle finance also fell. Other household loans and advances decreased by 7.3% y/y in July 2016.
