The accumulative affect of rising interest rates is taking its toll on consumers who are tightening their grip on expenses, according to First National Bank, which has also appealed to customers who are struggling to meet their debt obligations to come forward for help.
“These are tough times for the South African household. The evidence indicates that the pressure from the rising costs of living is being felt by all types of consumers,” says Lynette Nicholson, head of research at FNB Home Loans.
An online study conducted by FNB Home Loans prior to the latest interest rate announcement illustrates some interesting differences between Generation X (those born 1964 - 1979) and Generation Y (those born 1980 - 1994) regarding their current financial situation, and the steps they are taking to manage their finances.
Three in four respondents claimed that they were currently feeling the financial pinch to some degree, and there were no significant differences between Generation X and Generation Y home owners. However, all of the consumers surveyed had a home loan, but also held the following products;
| Generation X | Generation Y | Total |
| Credit Cards | 92% | 87% | 90% |
| Vehicle finance | 70% | 63% | 68% |
| Personal Loans | 34% | 23% | 31% |
| Store cards | 59% | 60% | 59% |
In addition to their primary home loan, approximately 1 in 4 Generation X, and 1 in 5 Generation Y home owners owned another residential property, which were primarily properties bought for investment purposes.
According to Nicholson, “Perhaps the most interesting difference between the generations is the fact the ‘older' generation is consolidating their debt into their home loans and the ‘younger' generation is borrowing additional money from family and friends.” In order to manage the current financial pressure, respondents were doing the following:
| Generation X | Generation Y | Total |
Cutting down on
expenses overall
(household and personal) | 64% | 52% | 58% |
| Drawing on savings | 22% | 22% | 22% |
Cutting down or
stopping
contributions to
savings, policies or
investments | 19% | 13% | 16% |
Consolidating debt
into home loan | 17% | 8% | 13% |
Negotiating for a
better interest rate
on home loan | 14% | 8% | 11% |
Taking out a
personal loan/larger
personal
loan/overdraft | 11% | 12% | 12% |
Borrowing from
friends/family | 8% | 12% | 10% |
The two main expense categories hit the hardest in terms of reduction spending are entertainment/movies/eating out and luxury food and grocery items. Interestingly, DSTV/M-Net and domestic workers (which can be classified as home “luxuries”) are lower down the list of expenses being cut.
| Generation X | Generation Y | Total |
Entertainment/Movies/Eating
out | 78% | 68% | 73% |
| Food and groceries - luxury | 72% | 77% | 75% |
| Books/magazines/DVD's/Music | 56% | 62% | 59% |
Home Décor and/or garden
expenses | 54% | 68% | 61% |
| Clothing | 53% | 63% | 58% |
| Holidays | 48% | 38% | 43% |
| Cell phone expenses | 46% | 55% | 51% |
| Hairdresser/cosmetics | 39% | 50% | 45% |
| Gifts and charitable donations | 38% | 57% | 48% |
| Petrol/Transport | 24% | 17% | 21% |
| Domestic Worker/Gardener | 21% | 20% | 21% |
| DSTV/M-Net | 10% | 15% | 13% |
Food and groceries -
day-to-day | 17% | 33% | 25% |
“We would advise customers who find themselves unable to honour their homeloan repayments to contact us and discuss repayment terms. The last thing FNB Home Loans wants is to repossess homes of struggling customers. The process of repossessing a home has proven to be costly and burdensome. We would rather sit down with a customer and work out favourable ways in which they can repay their debt.”
- The sample was not confined to FNB home loan customers, but was a sample of home owners with mortgage bonds across all the banks.
