Rate hike pain to hit household credit

Johannesburg - Growth in household credit balances, including mortgage balances, is forecast to remain subdued over the next 12 to 18 months, according to the latest Absa review of credit and mortgage advances.

This is because interest rates are forecast to rise again later this year and in 2016, which will impact the affordability of credit and add to consumers’ financial strain, Jacques du Toit, property analyst at Absa Home Loans, said on Monday.

"Macroeconomic developments and their impact on household finances and consumer confidence will remain key driving factors of household credit and its various components in the rest of the year," said Du Toit.  

The latest Absa overview shows that year-on-year (y/y) growth in the value of outstanding credit balances in the South African household sector was recorded at 3.7% at the end of July 2015, and has been below the 4% level for the past 12 months.

Growth in the value of household secured credit balances - R1 094.2bn and 75.7% of total household credit balances - was unchanged at 2.9% y/y at the end of July from the end of June. Growth in instalment sales balances slowed down further to 3.8% y/y, whereas growth in mortgage balances remained stable.

READ: Credit growth slows in June

Household unsecured credit balances - R351.3bn and 24.3% of total household credit balances - recorded growth of 5.9% y/y at the end of July, up from 5.5% y/y at the end of June.

"The acceleration in growth in unsecured balances was the result of growth in general loans and advances - 60.6% of household unsecured balances - rising to 5.6% y/y from 4.9% y/y at the end of June, while growth in overdraft balances... increased from 0.4% y/y at the end of June to 4.7% y/y at the end of July," said Du Toit.

Private sector mortgage balances, consisting of commercial and residential mortgages, recorded growth of 5% y/y at the end of July. The outstanding value of household mortgage balances increased to R848.2bn up to July, showing growth of 2.8% y/y over the seven-month period.

"Year-on-year growth in this component of household credit balances is below the 3% level since January 2013, which is an indication of trends in household finances and consumer confidence," said Du Toit.

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.

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