April mortgage advances peak at 16 year high

Mortgage advances by the monetary sector increased by 25,3% year-on-year (y/y) in April 2005 compared with a y/y rate of 24,1% in both February and March, according to data released June 06 by the South African Reserve Bank.

The April growth, according to Absa, was the highest recorded since April 1989 when it was 25,8% and is probably related to the fact that interest rates declined somewhat further during the course of last month.

Year-on-year growth in mortgage advances increased from 11,7% in mid-2003 to its current level of 25,3%, which the bank says, is largely a result of the variable mortgage interest rate dropping to its lowest level since September 1975 when it was also 10,5%.

Absa says this mortgage rate trend has largely contributed to the boom in the property market during the past few years. On a month-on-month basis, growth in mortgage advances came to 2,3% in April from 1,7% in March and 0,7% in February this year.

The higher mortgage advances growth of late can most probably be ascribed to the effect of slower growth in house prices since late 2004 (22,5% year-on-year in May 2005
compared with 35,4% in October last year), together with continued low interest rates.

These developments had a positive impact on the affordability of housing in recent times, with the monthly mortgage repayment on a house in the so-called middle segment of the market (houses of between 80m² and 400m², up to R2,2 million) and the qualifying gross
monthly income 14,7% higher in May 2005 compared with May last year (18,5% in April).

Housing, the bank says, is still less affordable than a year ago, but the 2004 trend during which housing became increasingly unaffordable, had turned around in early 2005.

However, on a month-on month basis, the affordability of housing has actually improved from April to May this year, with both the average monthly mortgage repayment and the
qualifying gross monthly income declining by 0,9% during the past month compared with April. This was mainly the result of slower growth in house prices in May, as well as slightly lower interest rates since mid-April.

Against this background, Absa expects growth in mortgage advances to most probably remain relatively high in the short term, but slower growth is expected towards the end of the year and into 2006 as interest rates level out and are projected to start increasing as from mid-2006.

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