Mortgage advances by the monetary sector increased by 29,8% year-on-year in June 2006, which is down from the 30% level it has hovered at since March to May, and potentially indicates the early stages of a downward trend in demand for housing, according to analysts.
FNB property strategist John Loos said while declines in year-on-year growth in mortgage advances had been very slight in the past two months, he believed this represented the start of a steady downturn in this growth rate.
“This view is based on the major role that residential property plays in overall mortgage advances growth, and the sharp decline that has already occurred in both house price inflation as well as in growth in the value of new mortgage loans granted,” Loos said.
“Rising interest rates will not only serve to slow the growth in new advances, but also speed up the growth rate in capital repayments, thus attacking the growth in total mortgage loans outstanding from both sides,” he said.
Jacques du Toit, senior economist from Absa, said in view of a slowing residential property market and anticipation of higher interest rates before the rate hike in June, mortgage advances growth had hovered around 30% year-on-year since March up to May this year, with growth dipping slightly to just below the 30% level in June. Against the background of a slowing housing market and higher interest rates in the second half of the year, mortgage advances growth of around 15% is projected at year-end, compared with a growth rate of 27,6% recorded at the end of 2005.
Research house RLJP said higher interest rates in June did not seem to have had a material effect on private sector credit demand.
“Despite a perceived cooling off in residential property activity and actual softening in house prices, particularly at the higher end of the market, demand for mortgage finance remains healthy.
“Healthy growth in mortgage advances is indication that activity in certain sectors of the property market remain buoyant, particularly the non-residential sector. The figures also indicate that property owners could be re-mortgaging their properties, and that there are high rates of churn in the residential property market, however it will be interesting to see to what extent these continue as higher interest rates begin to take effect,” they said. ‒ I-Net Bridge