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Johannesburg - The downward trend in the growth in household credit balances has largely been driven by a slowdown in growth of unsecured credit balances, according to Jacques du Toit, a property analyst at Absa Home Loans.
The value of outstanding credit balances in the South African household sector showed growth of 5.5% year-on-year (y/y) up to the end of 2013, down from 9.9% y/y at the end of 2012.
The outstanding credit balances comprise instalment sales, leasing finance, mortgage loans, overdrafts, credit card debt, and general loans and advances - mainly personal loans and micro finance.
Growth in household secured credit balances - instalment sales, leasing finance and mortgage loans - tapered off to 4.5% y/y by the end of 2013.
This was mainly as a result of a slowdown in growth in instalment sales balances and continued low growth in household mortgage balances.
The value of outstanding mortgage balances in the household sector (77.8% of total household secured credit) recorded growth of 2.4% y/y in the twelve months up to end-December 2013.
This reflects the impact of the general state of the property market and household finances on the demand for mortgage finance, said Du Toit.
Growth in the value of household unsecured credit balances - consisting of general loans and advances, credit card debt and overdrafts - dropped further to 8.9% y/y at the end of December.
This is its lowest level since August 2010. The slowdown in growth in unsecured credit balances was largely driven by the component of general loans and advances, which showed growth of 6.1% y/y up to end-2013 from 30.14% a year ago.
Interest rates
The South African Reserve Bank (Sarb) hiked the monetary policy rate – the repo rate – by 50 basis points to 5.5% with effect from January 30 2014.
As a result, commercial banks raised their prime lending and variable mortgage rates to 9% per annum as from the same date.
The rate hike came on the back of a sharp depreciation in the rand exchange rate since late last year, which poses a risk of increased inflationary pressures, explained Du Toit.
Domestic fuel prices have already increased a cumulative 55 cents/liter since December on the back of exchange rate and international oil price movements. A further price hike is expected in early February.
In view of these developments, Sarb is expecting a headline consumer price inflation rate of 6.3% in 2014 (6.6% in the final quarter of the year) and 6% in 2015.
These expectations increase the risk of further interest rate hikes this year.
The latest interest rate hike, and any possible further rate hikes, will increase the pressure on an already financially strained household sector in view of low economic, employment and income growth.
Inflationary pressures are mounting and household debt remains relatively high.
As a result, the property market is expected to reflect these conditions, with market activity, transaction volumes, house prices and the demand for and the accessibility and affordability of mortgage finance to be adversely affected.
Property
One of the most obvious impacts of Wednesday's Sarb interest rate hike would be a dampening of residential home buying demand, as certain buyers perhaps postpone their residential purchase until the interest rate hiking cycle appears to have passed, said John Loos, household and property strategist at FNB Home Loans.
This impact is likely to be seen in the form of a decline in first time buyers as a percentage of total home buyers, as many younger buyers have greater flexibility, being able to remain in their parents’ home for longer or to hang out in the rental market for the time being.
The impact will also be likely felt among those sellers selling in order to downscale due to financial pressure, said Loos.
Not only could rate hikes raise the numbers of this category of sellers of property, but it is also expected to raise the portion of these sellers that downscale into rental properties for the time being as opposed to buying a cheaper property.
This all leads to one likelihood, namely stronger growth in demand for rental properties.
Simultaneously, interest rate hiking can normally be expected to curb already-weak buy-to-let home buying.
All in all, therefore, rising interest rates should imply stronger growth in demand for properties to rent, accompanied by slower growth in supply of properties to rent.
The combination is likely to see higher rental inflation, just as we saw the last time interest rates peaked around 2008.
The value of outstanding credit balances in the South African household sector showed growth of 5.5% year-on-year (y/y) up to the end of 2013, down from 9.9% y/y at the end of 2012.
The outstanding credit balances comprise instalment sales, leasing finance, mortgage loans, overdrafts, credit card debt, and general loans and advances - mainly personal loans and micro finance.
Growth in household secured credit balances - instalment sales, leasing finance and mortgage loans - tapered off to 4.5% y/y by the end of 2013.
This was mainly as a result of a slowdown in growth in instalment sales balances and continued low growth in household mortgage balances.
The value of outstanding mortgage balances in the household sector (77.8% of total household secured credit) recorded growth of 2.4% y/y in the twelve months up to end-December 2013.
This reflects the impact of the general state of the property market and household finances on the demand for mortgage finance, said Du Toit.
Growth in the value of household unsecured credit balances - consisting of general loans and advances, credit card debt and overdrafts - dropped further to 8.9% y/y at the end of December.
This is its lowest level since August 2010. The slowdown in growth in unsecured credit balances was largely driven by the component of general loans and advances, which showed growth of 6.1% y/y up to end-2013 from 30.14% a year ago.
Interest rates
The South African Reserve Bank (Sarb) hiked the monetary policy rate – the repo rate – by 50 basis points to 5.5% with effect from January 30 2014.
As a result, commercial banks raised their prime lending and variable mortgage rates to 9% per annum as from the same date.
The rate hike came on the back of a sharp depreciation in the rand exchange rate since late last year, which poses a risk of increased inflationary pressures, explained Du Toit.
Domestic fuel prices have already increased a cumulative 55 cents/liter since December on the back of exchange rate and international oil price movements. A further price hike is expected in early February.
In view of these developments, Sarb is expecting a headline consumer price inflation rate of 6.3% in 2014 (6.6% in the final quarter of the year) and 6% in 2015.
These expectations increase the risk of further interest rate hikes this year.
The latest interest rate hike, and any possible further rate hikes, will increase the pressure on an already financially strained household sector in view of low economic, employment and income growth.
Inflationary pressures are mounting and household debt remains relatively high.
As a result, the property market is expected to reflect these conditions, with market activity, transaction volumes, house prices and the demand for and the accessibility and affordability of mortgage finance to be adversely affected.
Property
One of the most obvious impacts of Wednesday's Sarb interest rate hike would be a dampening of residential home buying demand, as certain buyers perhaps postpone their residential purchase until the interest rate hiking cycle appears to have passed, said John Loos, household and property strategist at FNB Home Loans.
This impact is likely to be seen in the form of a decline in first time buyers as a percentage of total home buyers, as many younger buyers have greater flexibility, being able to remain in their parents’ home for longer or to hang out in the rental market for the time being.
The impact will also be likely felt among those sellers selling in order to downscale due to financial pressure, said Loos.
Not only could rate hikes raise the numbers of this category of sellers of property, but it is also expected to raise the portion of these sellers that downscale into rental properties for the time being as opposed to buying a cheaper property.
This all leads to one likelihood, namely stronger growth in demand for rental properties.
Simultaneously, interest rate hiking can normally be expected to curb already-weak buy-to-let home buying.
All in all, therefore, rising interest rates should imply stronger growth in demand for properties to rent, accompanied by slower growth in supply of properties to rent.
The combination is likely to see higher rental inflation, just as we saw the last time interest rates peaked around 2008.
