Majority of homeowners under strain – Absa review
THE PERCENTAGE of homeowners paying only the minimum amount on their mortgage loans for their primary residences has increased to 67 percent, its highest level since mid-2010, as household financial strain increased significantly in the current almost zero growth economic environment.
By comparison, in July 2013 only 54 percent of homeowners made the minimum repayment on the mortgage loans for their primary residences.
The percentage of homeowners paying extra into their mortgage loan accounts on a monthly basis has also dropped to its lowest level during this period at 14 percent after peaking at 31 percent in July 2013, according to the latest Absa quarterly housing review.
Absa said information on home loan repayment patterns on primary residences published by Old Mutual last month showed that the percentage of homeowners paying extra into their mortgage loan accounts was also lower in the middle of this year than a year ago.
Jacques du Toit, a property analyst at Absa Home Loans, said repayment patterns by income category unsurprisingly showed that low to middle income homeowners were mostly paying the minimum only by the middle of this year, with high income homeowners in a better position to pay extra on a monthly basis.
Income categories
The Old Mutual information referred to by Absa showed that 77 percent of homeowners in the R6 000 to R13 999 a month income category paid only the minimum mortgage loan repayment amount each month, compared with 58 percent for the R40 000 a month or more monthly income category.
Du Toit said that the largest percentage of homeowners had mortgage repayments of between R3 000 and R4 999 a month by the middle of this year.
He added that these trends in home loan repayment patterns were a reflection of the state and changes in the financial position of homeowners based on trends in economic conditions. Du Toit stressed that these pointed to increased levels of household financial strain, particularly in the past three years.
“These developments adversely affected consumers’ ability to service existing debt and prevented them from taking up new credit on a large scale, thereby increasing debt levels, which eventually caused the demand for and growth in credit extension to remain subdued,” he said.
Du Toit said the TransUnion consumer credit index showed that the general credit health of South African consumers deteriorated markedly in the first three months of this year from the end of last year. This resulted in distressed borrowing increasing marginally, the cash flow of households tightening further and debt service costs rising noticeably.
Du Toit said the average nominal price of a new house increased by 9.9 percent year on year to R1 937 000 in the second quarter of this year after growing marginally by 0.6 percent in the first quarter.
He said the cost of having a new house built increased by 8.5 percent year on year in the second quarter of this year after increasing by 5.1 percent in the previous quarter.
Du Toit said these price trends implied that it was about 28.6 percent or R553 700 cheaper to have bought an existing house in the second quarter of this year than to have had a new home built.