Property boom lifts mortgage advances to record
MORTGAGE advances in SA increased 24,8% year on year in January, the highest recorded growth recorded since May 1989 when it was 24,9%.
According to data released by the South African Reserve Bank, December also saw strong growth in mortgage advances with a year-on-year rate of 24,1%.
Jacques du Toit, senior economist at Absa Bank, said yesterday the surge was due to low interest rates and the residential property boom, which saw house- price growth peak at 35,5% year on year in September and October last year. But the hike in mortgage advances may put the reserve Banks monetary policy committee in a difficult position when it meets next month to decide on whether to cut interest rates.
A cut in interest rates could boost job creation. But it could also cause rampant growth in private-sector credit.
Adrian Saville, chief investment officer at Cannon Asset Managers, said one of the main factors that would influence further growth in mortgage advances was interest rates. A lot of attention is being turned to the likely outcome of Aprils monetary policy committee meeting.
If you look at recent inflation data (as measured by the consumer price inflation index) which recorded inflation of 3,6% for January, it suggests the MPC should cut interest rates, said Saville.
However, Absa Bank is expecting slower year-on-year growth rates in mortgage advances of between 15% and 16% towards the end of 2005 because of a slower rate of growth of house prices.
Du Toit said that following the peak in house price growth there had been a declining trend in house price growth since November last year. In January house price growth of 29,6% year on year was recorded.
The relatively stable interest rates during 2004, combined with a sharp increase in house prices have caused monthly repayments on new mortgage loans to assume a rising trend since early last year. This development is having a negative effect on the affordability of housing, said Du Toit.
Article by: Nick Wilson