Household credit growth remains pedestrian

June SARB credit data, released today, showed pedestrian growth rates for both total mortgage advances growth as well as for overall household sector credit growth. The total value of mortgage advances outstanding rose 3.4% year-on-year in June, which was unchanged from the previous month's growth rate.

While the broken down data runs a month behind, it is safe to assume that the slow-but-stabilising growth trend is predominantly residential-driven, with that segment accounting for near 80% of the total mortgage market. In May, the value of residential mortgages outstanding rose by 2.8%, while commercial mortgages rose by a slightly better 5.1%. The best performing mortgage sector is that of farm mortgages (although very small), which grew by 10.2% year-on-year in May.

Growth in mortgage advances outstanding has flattened out in the first half of 2010, after a long decline. This is due largely to significant growth in the value of new residential loans early in 2010. The value of new loans granted for the residential market reached +73.9% by March (the most recent numbers available), while commercial grants by comparison still languished in the doldrums, declining year-on-year by -40.8%. The net result has been a return to positive growth in new total mortgage loan payouts, as at March increasing by +9.5%, a marked improvement on the rapid fall in payouts through 2009.

Overall household sector credit growth continued its very gradual recovery, growing year-on-year by 4.3% in July, compared to 3.8% in the previous month, with noticeable increases in the growth rates of household sector installment sales and "other loans and advances" in recent times.


The growth rate in household sector credit probably remains slow enough to accommodate further decline in SA's very high household sector debt-to-disposable income ratio (78.4% in Q1 of 2010) for the time being, given some recovery in nominal household sector disposable income growth. Further decline in the debt-to-disposable income ratio is crucial (necessitating a period of slow household credit growth), prior to the next interest rate hiking cycle, because SA's debt-service ratio (the cost of servicing the household debt burden, interest+capital, as a percentage of disposable income), at an estimated 12.7%, is still too high for comfort. Any unexpected interest rate hiking in the near future would still be painful for a household sector, given the currently high debt ratio.

*John Loos is FNB Home loans strategist. Ewald Keller man is a property market analyst at FNB.

Article by: John Loos and Ewald Kellrman -