Mortgage Advances Report

The year-on-year (y/y) growth in the value of total mortgage advances by monetary institutions (the net outstanding balance on mortgage loans at these institutions) tapered off further to 8,2% in June 2009, from 9,4% in May, according to data released by the South African Reserve Bank. This was the lowest year-on-year growth in outstanding mortgage balances since July 2000, when it was 8,4%. On a month-on-month basis the growth in the outstanding balance on mortgage loans was a negligible 0,1% in June.

In the household sector, growth in the value of mortgage advances to households, largely related to residential property, declined to 6% y/y in June from 6,8% y/y in May and 24,8% y/y in June last year. At a level of R708,4 billion in June, the amount of outstanding mortgage balances in the household sector had a share of 72% in total mortgage debt in June, while having a share of 70% in total credit extended to the household sector in June.

The residential property market slowed down further during the first half of 2009, with house prices declining by a nominal 3% and a real 10% during this period, according to Absa’s calculations. This was mainly on the back of adverse economic conditions, impacting employment, household income, and housing demand and supply conditions. Nominal house price deflation is forecast to continue in the rest of 2009, slowing down towards the end of the year.

Consumer price inflation, at 6,9% in June, is expected to drop further, but to remain outside the inflation target range of 3%-6% in the near term. Demands for wage increases and wage settlement rates of well above the CPI inflation rate are contributing to inflationary pressures. As a result, interest rates are forecast to remain unchanged at the next Monetary Policy Committee meeting in August.

Against the background of these developments and expectations, mortgage advances growth is expected to slow down further into the second half of 2009.