Overall reduction in South Africa's household debt is likely to benefit the mortgage bond market

While it is good news that outstanding credit balances in South African household debt have recently been growing at a far slower rate (3,4% according to 30th January Absa Home Loans Review), it is disappointing that the value of outstanding private sector mortgages has so far risen by only 4,3% year-on-year – well below the current inflation rate.

This was said recently by Mike van Alphen, National Manager of Rawson Finance, the Rawson Property Group’s bond origination division, which now serves all of the group’s franchises countrywide.

“Like others,” said van Alphen, “we at Rawson Finance are hoping that the big drop in oil prices will be fairly permanent and the consequent lower inflation rate will boost the residential property sector.  However, we will probably not see this taking place for at least another two to three months.”

The improvement in household credit balances was, said van Alphen, not only welcome but absolutely essential.

“By late 2012 unsecured credit balances had got completely out of hand:  they were growing at 15% per annum.  Fortunately the National Credit Act ensured that that very unhealthy situation did not continue.”

“It also, however, had a marked restraining effect on mortgage bond awards.  We can only hope that in the year ahead there is a significant increase here – it is certainly true that the South African public are now more aware than ever before of the criteria they have to meet to qualify for a home loan and our experience indicates that there is growing realisation that with interest rates so low, and possibly set for another drop, this is an excellent time to buy a home.”

The rise in ‘frivolous’ spending which peaked in 2012, said van Alphen, has been without precedent in South Africa’s history and it has knocked the home buying market hard.

“Now that irresponsible tendency has been reined in, we can, I believe look forward to a period in which home ownership is again put as number one on the average consumer’s long term debt priority list.”

Van Alphen commented, too, that many of those who track the house price index in South Africa have been encouraged by the latest FNB Property Barometer, which indicates that the bank’s valuers, experts in calculating the market value of homes in the areas they serve, have reported that the residential property market has now reached the stage where, by a very small margin, the stock supply/demand balance has swung slightly in favour of the sellers, i.e. demand slightly exceeds supply.

The current ‘comfortable’ 6,6% nominal growth rate recorded by FNB is, therefore, likely to grow fractionally in the first few months of this year.

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