In spite of the two interest rate hikes this year, mortgage advances by the financial services sector increased 30,2% year-on-year last month, the highest growth on record since 1965, according to data released yesterday by the SA Reserve Bank.

Absa senior economist Jacques du Toit said it appeared that while the property market was continuing to slow down, the sustained high growth in mortgage advances, which include loans for residential and commercial properties, could be an indicator that households were using their mortgages to finance debt other than housing.

The total amount of mortgage advances in the monetary sector is R612,2bn.

House price growth peaked at more than 35% near the end of 2004 and has been slowing ever since as the relatively expensive housing market caused demand to drop off.

Nominal house price growth of 13,5% year on year was recorded in July, according to the Absa house price index. Du Toit said he was "a bit surprised by the data".

"The big test will be the data for the next month because then the Reserve Bank will have the August data available. One must still expect relatively high growth rates," said Du Toit.

He said the monetary policy committee, which meets in October, would remain concerned about the continued strong demand for credit in the economy, especially with regard to mortgage advances.

Meanwhile, Barry Kaganson, MD of property valuation business Valuation Alliance, said another factor contributing to the increase was the "changed mortgage landscape" in SA.

"Mortgage originators are actually punting for business and encouraging people to remortgage and draw down on equity on their homes," he said.

Kaganson said people and lending institutions, in particular, had to be "vigilant' in ensuring the additional borrowings were based on "sound property valuations" to prevent borrowers finding themselves in a negative equity situation.

Adrian Saville, chief investment officer at Cannon Asset Managers, said the data pointed to "a relentless appetite for debt" but showed only the initial possible effect of interest rate hikes on consumer appetite to borrow to spend.

Business Day
Publisher: I-Net Bridge
Source: I-Net Bridge