The South African economy emerged from recession in the second half of 2009 on the
back of improved global economic conditions and declining domestic interest rates since
late 2008. Real GDP increased at a quarter-on-quarter seasonally adjusted annualised
rate of 4,6% in the 1st quarter of 2010 after rising by 3,2% in the 4th quarter of 2009.
Interest rates have been cut by 550 basis points since December 2008, which brought
prime and mortgage interest rates to a level of 10% currently. This resulted in significantly
lower debt repayments for consumers, who were hard hit by the contraction in the
economy and tight labour market conditions. With the mortgage rate currently at its lowest
level since mid-1974, monthly repayments on mortgage loans are about 29% lower than
in December 2008 when the mortgage rate was 15,5%. Although lending rates are
currently much lower than 18 months ago, the household sector was still plagued by a
relatively high ratio of debt to disposable income of 78,4% in the 1st quarter of 2010.
Year-on-year growth in the value of outstanding mortgage balances in the household
sector remained relatively low in recent months since bottoming at 3,6% in November last
year. In May this year, the growth in households’ outstanding mortgage balances came in
at 4% year-on-year (y/y), down from 4,4% y/y in April. Growth in total credit extended to
the household sector, comprising instalment sales credit, leasing finance, mortgage
advances, credit card debt and other loans and advances, remained low at 3,8% y/y in
May (unchanged from April), which is a reflection of households’ financial position.
The ratio of outstanding household mortgage debt to disposable income was 47,8% in the
1st quarter of 2010, down from 48,8% in the 4th quarter of 2009. This was the net result of
trends in the growth of household mortgage debt (1,5% q/q) and nominal disposable
income (3,6% q/q) in the 1st quarter of the year compared with the preceding quarter. The
cost of servicing household mortgage debt as a percentage of disposable income was at
a level of 4,9% in the 1st quarter of 2010, marginally down from 5,1% in the final quarter of
2009, and is at its lowest level since late 2006. This was due to the abovementioned
trends in growth of household mortgage debt and disposable income, while the mortgage
rate was on average somewhat lower in the 1st quarter after rates were cut by 50 basis
points in March this year. The ratio of household mortgage debt to total household debt
stabilised at around 61% in the past few quarters. Banks’ stricter lending criteria since
2008 have also contributed to these trends in the abovementioned ratios and growth
rates.
These developments in respect of household credit and mortgage debt reflect the
financial conditions prevailing in the household sector during and after the economic
recession, with mortgage advances growth forecast to remain in single digits this year.
The housing market posted some relatively strong price growth in the 1st half of 2010 on
the back of base effects a year ago when nominal price growth was in negative territory.
Real growth in house prices was also supported by declining consumer price inflation in
the 1st half of the year. However, year-on-year house price growth is expected to taper off
in the latter half of the year due to the base effects of a marked recovery towards the end
of 2009. Interest rates are forecast to remain unchanged in the rest of 2010, providing no
further support to the property market, while an expected bottoming in the CPI inflation
rate in the 3rd quarter will impact real house price growth towards year-end.