New data from consumer credit reporting agency, TransUnion shows that South Africa’s vehicle finance market is showing signs of recovery as the rate of originations growth continues to improve, balances increased and delinquency rates improved.
The home loan market shows sustained signs of recovery as balance growth ticked up substantially and origination growth improved. The overall trend in rising delinquencies is a concern that requires urgent attention, it said.
The South African Industry Insights Report (IIR) for Q1 2021, published by TransUnion, found that origination volumes dropped by only 4.0% YoY in Q4 2020 which is comparative to the YoY change observed in Q1 2020: -4.8%.
New vehicle loan volumes have therefore returned to pre-pandemic levels. New loan amounts increased by 7.6% indicating that consumers are purchasing higher-priced vehicles. This is further supported by the latest Transunion Vehicle Pricing Index (VPI) which showed that, in Q1 2021, the VPI for new and used vehicle pricing had risen to 8.8% and 3.7% respectively.
As such, overall outstanding vehicle finance balances increased substantially by 16.7% YoY in Q1 2021 also driven by significantly higher averages balances (up 20.2% YoY).
Refinancing options, low interest rates, renewed purchasing activity in the latest quarter, and a shift towards higher-priced vehicles have all contributed to this increase.
Vehicle finance was the only product type where delinquency rates improved (down by 30 bps YoY). Q1 2021 marked the first improvement in serious-level delinquencies since 2016.
This improvement could be as a result of a combination of factors: better portfolio management from lenders, consumers prioritising vehicle loan payments relative to other products for convenience and safety (especially given that local travel has opened up) or it could be that after several years of acceleration, delinquencies have now normalised.
Home loans also recorded a comparatively lower fall of originations (down by only 2.9% YoY) in the most recent quarter. Increased balances are reflective of housing supply slowing while demand is still increasing.
Consumers that have managed to maintain or even improve their income during the pandemic have driven demand and are increasingly prevalent in the market, TransUnion said.
Supply has generally fallen as consumers continue to work from home and construction of new homes has declined. This supply/demand mismatch has caused a significant rebound in house prices and has caused the average new loan amount to increase 44% year-on-year (YoY) in Q1 2021 as a result.
Account-level serious delinquency rates deteriorated for the fourth consecutive quarter, increasing by 150 bps to 6.4% in Q1 2021.
“While this increase is smaller than previous quarters, this delinquency deterioration trend has persisted for several quarters and requires intervention. Lender portfolio management and effective risk reduction strategies from origination and throughout the account lifecycle become critical to mitigating this concerning trend,” it said.