Loan Advances Slow Further - 12-04-08

December 4 - The Reserve Bank released figures over the weekend, showing that mortgage advances in October stood a four year low. According to the bank, year on year growth in advances made by banks slowed to 16.1% - the lowest it has been since February 2004 when the growth rate stood at 15.9%.

Absa Home Loans issued a research note with these figures and predicted that this growth rate will continue to decline against a problematic economy and a stagnant property industry.

"The year on year growth in mortgage advances is projected to continue its declining trend towards the end of 2008 and into the early stages of 2009," said a senior property analyst at Absa Home Loans, Jacques du Toit, "driven by the lagged effect of the interest rate cycle, the National Credit Act (NCA), stricter credit criteria imposed by banks and financial difficulties experienced by consumers."

According to Absa, outstanding mortgage balances in the household sector - which comprises 72.5% of the total mortgage debt in South Africa - stood at just under R700 billion. Mortgage advance growth in this sector stood at 19.9% compared to 20% compared to year on year in September. The total mortgage debt essentially comprises residential, as well as commercial loans.

Turning to the nominal house price growth, Absa said that October's figures showed a fifteen year low - only 1.2% (year on year) in October.

Absa said that house prices are predicted to drop by 6-7% in 2008.