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Household credit and home loan growth under pressure

24 Aug 2015

With interest rates forecast to continue to rise before the end of the year, as well as in 2016, growth in household credit balances, including home loan balances, is expected to remain under pressure over the next 12 to 18 months.

With interest rates forecast to continue to rise before the end of the year, as well as in 2016, growth in household credit balances, including home loan balances, is expected to remain under pressure over the next 12 to 18 months, says Du Toit.

This is according to Jacques du Toit, Property Analyst for Absa Home Loans, who says this is reflected in the Absa Credit and mortgage advances report.

He says trends in the economy, household finances and consumer confidence are key factors in driving the demand, as well as the accessibility and cost, of mortgage finance and household credit.

According to the report, the outstanding value of household mortgage balances increased to R845 billion in the first half of 2015, showing growth of 2.8% year-on-year (y/y) recorded over the six-month period.

Du Toit says y/y growth in this component of household credit balances remained below 3% for the past two-and-a-half years, largely reflecting the state of household finances and consumer confidence.

The value of outstanding mortgage balances is the net result of all property transactions related to mortgage loans, including additional capital amounts paid into mortgage accounts and extra monthly payments above normal mortgage repayments, says Du Toit.

He says the first six months of 2015 saw growth in the value of outstanding credit balances in the South African household sector remaining low, at a level of around 3.5% y/y since August last year.

Growth in the value of household secured credit balances, amounting to R1 090.6 billion at end-June and comprising 75.8% of total household credit balances, was down to 2.9% y/y from 3.2% y/y at the end of May.

Du Toit says the somewhat slower growth was the result of instalment sales balances growing increasingly slower, at only 4% y/y up to end-June, whereas growth in mortgage balances remained relatively stable from end-May.

Household unsecured credit balances are totalling R348.2 billion, accounting for 24.2% of total household credit balances at end-June, showing a growth of 5.5% y/y at the end of the first six months of the year.

Growth in general loans and advances accounts for 60.7% of household unsecured balances, and measured 4.9% y/y at the end of June, up from 3.2% y/y at end-May, says Du Toit.

Overdraft balances, making up a 9.9% share of the household unsecured balance, showed growth of 0.4% y/y at end-June from a contraction of 8.2% y/y at the end of May.

Meanwhile, Du Toit says private sector mortgage balances, consisting of commercial and residential mortgages, saw unchanged growth of 4.8% y/y up to June from end-May.

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