Growth in South African mortgage advances moving sideways in March

Growth in South African Mortgage Advances Moving Sideways in March

According to data released by the Reserve Bank, year-on-year growth in mortgage advances by monetary institutions came to 23,2% year-on-year (y/y) in March 2008, compared with a growth rate of 23,1% recorded in February. This brought the total amount of mortgage advances to R882,1 billion in March. On a month-on-month basis, mortgage advances growth was somewhat lower at 1,2% in March February from 1,5% in February.

The household sector came under increased financial pressure in recent times with fuel prices rising to record highs on the back of high international oil prices and rand exchange rate movements, CPI food price inflation increasing to above 15% y/y last month, and interest rates which were hiked again earlier in April as a result of these inflationary pressures.

The latest rate hike caused the average monthly mortgage repayment to increase by almost 32% in total since mid-2006 when interest rates have been raised by a cumulative 450 basis points. Inflation is forecast to remain under upward pressure over the short term, driven by food price inflation expected to remain relatively high and further likely fuel price increases in the pipeline. The average under-recovery on the petrol price for April to date is about 29 cents/litre, for wholesale diesel it is between 46 and 47c/l, and for illuminating paraffin it is 52 c/l. Expectations of inflation rising further may have a major impact on higher wage demands this year.

Against this background, the Reserve Bank’s MPC is expected to raise interest rates by another 50 basis points in June. If this expectation holds true, it will take banks’ lending rates to a level of 15,5%. In view of these developments, it may be possible that some consumers are borrowing in distress, especially those who have sufficient equity in their mortgage loans and who are still able to afford higher debt repayments. This might have caused mortgage advances growth to have remained static in March from February. Data compiled by the Reserve Bank indicates that growth in mortgage advances by the household sector has accelerated in recent months, underpinning the abovementioned view of distress borrowing over the short term.

Growth in mortgage advances is expected to taper off to well below 20% by end-2008, driven by the combined effect of deteriorating economic conditions and the National Credit Act.

Authored By: Jacques Du Toit
Published By: ABSA Home Loans

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Longer home loan repayments now popular

Longer South African Home Loan Repayments Now Popular

In order to soften the blow of higher interest rates and in a market where future interest rate trends are difficult to predict, many home purchasers are applying for the longest possible repayment periods on their home loans.

“Even though most applicants intend on paying the instalments which would apply to a 20-year repayment term, many apply for a 30-year repayment period as a strategic buffer mechanism to ensure their bond repayments remain affordable should interest rates increase,” reports Amdec Property Development’s head of bond origination Ronell Killian.

By doing this, she notes, it provides a degree of flexibility when it comes to a home loan repayment.

“Qualifying for a longer repayment period does not increase the amount of interest paid, as this is charged on the outstanding balance of the loan each month, unlike vehicle finance where the full interest amount is paid first and the balance of the loan only reduces once all the interest is paid,” she points out.

Also, with the introduction of the National Credit Act (NCA), Killian says that applicants will often qualify for a slightly higher home loan when applying for a longer repayment period.

Published By: I-Net Bridge

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South African mortgage advances growth slowing down further

South African Mortgage Advances Growth Slowing Down Further

In February 2008, year-on-year growth of 23,1% was recorded in mortgage advances by monetary institutions (24,5% in January), according to data released by the South African Reserve Bank. This brought the total amount of mortgage advances to R871,5 billion in February. On a month-on-month basis, mortgage advances growth was lower at 0,8% in February from 1,2% in January.

With residential mortgages having the biggest share in total mortgage advances, the abovementioned further slowdown in the growth in mortgage credit is largely a reflection of a housing market still cooling off. Nominal year-on-year house price growth is already in single-digit territory, whereas real year-on-year price growth is virtually zero. The expectation is for the housing market to slow down and price growth to taper off further in 2008, mainly driven by high interest rates on the back of rising inflation, and the effect of the National Credit Act on household sector credit extension, with the affordability of housing being adversely affected by these factors. CPIX inflation is under significant upward pressure as a result of oil price, rand exchange rate and food price movements, while a proposed sharp electricity price increase will push inflation to even higher levels.

These factors are set to influence inflation expectations and wage demands this year. In view of these developments, the Reserve Bank’s Monetary Policy Committee will face a difficult task next week when deciding on the way forward for interest rates.

Mortgage advances growth is expected to continue its declining trend in the rest of 2008, driven by the lagged effect of the higher interest rates, the impact of the National Credit Act, and the difficult financial conditions consumers are experiencing in general. These factors, as well as a slower pace of economic expansion, lower growth in real household disposable income, and a slowing housing market this year are set to contribute to yearon-year mortgage advances growth of below 20% projected by year-end.

Authored By: Jacques Du Toit
Published By: ABSA Home Loans

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Mortgage advances growth virtually stable since end-2007

Mortgage Advances Growth Virtually Stable Since End-2007

Year-on-year growth of 24,5% was recorded in mortgage advances in January 2008 (24,7% in December), according to data released by the South African Reserve Bank. This brought the total amount of mortgage advances to R864,5 billion in January. On a month-on-month basis, mortgage advances growth was lower at 1,2% in January from 1,8% in December.

The CPIX inflation rate surged to a level of 8,8% in January, which was above market expectations. This was the result of adverse movements in the international price of oil and a weakening in the rand exchange rate in recent times, while CPIX food price inflation remained high at 13,6% in January. The average under-recovery on the petrol price was around 59 cents per litre up to 28 February, implying that the pump price of petrol is set to increase to above R8 per litre next week. In April, an increase in fuel levies of 11 cents per litre, as announced in the Budget on 20 February, will come into affect. In view of these developments, CPIX inflation will remain under upward pressure in the short term. Currently expectations are for CPIX to rise to a level of 9,5% in the
near term, which adds to the risk of another interest rate hike in April when the Reserve Bank’s Monetary Policy Committee meets.

Mortgage advances growth is expected to continue its gradual declining trend of the past number of months, largely driven by the lagged effect of the higher interest rates, and also the impact of the National Credit Act in the second half of last year. Factors such as a slower pace of economic expansion, lower growth in real household disposable income, and a slowing housing market this year are also set to contribute to year-on-year
mortgage advances of around 17% projected by the end of 2008.

Authored By: Jacques Du Toit
Published By: Absa Home Loans

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First-time property borrowers hit the hardest

First-time Property Borrowers Hit the Hardest

Fall in debt summonses belies what is happening ‘on the ground’, say experts
Economics Editor

HOUSEHOLDS are coming under mounting strain as interest rates climb, with people who have taken on debt for the first time likely to be hit the hardest.

Businesses are also starting to grapple with higher debt service costs, although the trend has not yet been convincingly reflected in official data.

Eyebrows shot up after figures from Statistics SA yesterday showed that civil debt summonses fell 11,6% in the year to August while civil debt judgments dropped 10,8%.

The data mainly reflect individual debt, and contrast with a 16,2% annual increase in company liquidations during the same month, which boosted the total to a three-year peak.

“From our experience, what we see in these figures doesn’t reflect what we see on the ground,” said Credit Guarantee chief economist Luke Doig. “I’m expecting a 20% increase in liquidations going into 2008.”

Doig declined to give details but said that his company, which insures business-to-business debt, had seen a “significant” rise in requests for payment extensions in the past few months.

That would put the start of the trend a year after the Reserve Bank’s first interest rate hike last year — bang in line with the view that changes in interest rates take between one and two years to be fully felt.

In the past 16 months, the cumulative increase in lending rates amounted to 3,5 percentage points, taking prime lending rates to 14%, a four-year peak.

The impact on households is hard to quantify, as growth in retail sales has remained buoyant, while the pace of private credit extension has subsided modestly.

This is baffling, particularly as the introduction of stricter lending rules in June this year has been viewed as another “quasi” interest rate hike.

Household debt as a ratio of disposable income has climbed steadily in the past four years, scaling a record 76,5% in the second quarter of this year, from 51,8% at the start of 2003.

Debt service costs as a percentage of disposable income has risen to 9,7% from 8,8% over the same period, after dipping to 6,2% late in 2003.

The ratio is high, but well below a peak of 15% late in 1998, when prime lending rates rocketed to 25,5% during a global emerging market crisis. That, along with rising income, could help explain why consumers have shrugged off rising interest rates.

But there are other theories, which lead to worrying conclusions. Standard Bank economist Danelee van Dyk says 60% of an estimated R920bn of outstanding household debt was taken on between 2003 and 2006, while prime lending rates were either falling towards or hovering at near-record lows of 10,5%.

Between March 2003 and March this year a net 1,34-million new jobs were created, suggesting there were many more people eligible for credit for the first time.

Employment among those earning between R2500 and R8000 a month — SA’s middle-income group — rose 27%, well above other income groups.

“This certainly confirms that a large part of the new debt may have been incurred by the expanding middle income group,” said Van Dyk. “They are likely to be taking the most strain in this high interest rate environment.”

Other analysts agree.

“The increase in debt levels over the past few years has been the result of more people coming on to the market,” said Hugo Pienaar, economist at the Bureau of Economic Research.

“There are clear signs that some are now feeling the pinch.”

Authored By: Mariam Isa
Published By: Business Day

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Mature homeowners can unlock property value

Mature South African Homeowners Can Unlock Property Value

It’s common cause that less than 5% of South Africans have sufficient retirement income but unlocking the value in their properties can go a long way towards a solution. “Financial planners place heavy emphasis on providing for the future of the younger generation, but little help is available for those who have already reached retirement age and are cash poor but asset rich in the form of their property,” points out Gerhard Kotzé, CEO of the ERA South Africa property group.

The good news is that there are numerous ways to tap into that value. Reverse mortgages, as they are known, are pioneering ‘equity-release’ products. Seniors Finance offers a product called SF Help, while Nedbank has launched its Home Income Plan.

Both basically assist senior citizens in unlocking value from their homes without having to sell them. “The principle of these products has been well tested overseas. Basically, the senior citizen homeowner is granted a loan based on the value of the property, rather than on his or her income level,” Kotzé explains.

In the case of the Nedbank product, for example, the borrower has to be at least 65 years of age, the minimum value of the property R850 000 and the minimum loan R200 000. The Nedbank loan is granted with the option of repaying or not repaying it. If the choice is the latter, the loan is repaid at the death of the borrower from the assets in the estate or by the surviving spouse, by which time the property should have increased in value.

“Good financial advice is needed before entering into one of these agreements, as with other options such as selling to your children. Parents can sell their homes to their children but need to beware of donations tax and transfer duty (payable by the buyers) and capital gains tax (payable by the sellers).

Published By: Property Trader, September 26, 2007

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Mortgage originators saving South African consumers R30bn annually

Mortgage Originators Saving South African Consumers R30bn Annually

The rise in popularity of mortgage originators in the home buying process has now reached a level where they are collectively saving South African consumers R30bn a year in interest charges through lower home financing costs.

This comes from discounts to the prime lending rate originators achieve by shopping around at various banks on behalf of homebuyers to secure the lowest borrowing rates possible says the company that launched bond origination in South Africa in 1999.

There is no charge to homebuyers for originators’ services. Rhys Dyer, chief operating officer of MortgageSA, the originator that has placed over 300 000 people in their homes with over R100bn in mortgages, says that prior to the advent of origination banks offered customers home loan rates of, on average, 0,5% below prime. “Since originators came on the scene, we have driven this average rate concession down to 1,5% below prime, saving consumers on average 1% on their rate concession. “

This 1% saving – based on annual new homeloan values – represents a R30 billion interest savings annually to consumers over the life of their bonds.” Dyer says that in the current cycle of rising interest rates, consumers need to be even more certain they are getting the lowest rate when sourcing a home loan because even a 0,1% lower rate will make a significant difference over the life of a bond. Dyer notes that as early experience of the NCA has shown there is variation in banks’ lending criteria. This means that people declined by one bank are often approved by another.

Authored By: Rodney Hayter, September 25, 2007

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