The value of outstanding credit balances in the South African household sector increased by 4.5% year-on-year (y/y) to R1,463,8bn at the end of October 2015. The further uptick in credit balances growth from 4.3% y/y at end-September was driven by higher growth in the secured component, whereas growth in unsecured balances slowed down further.
Growth in the value of household secured credit balances (R1,108,2bn and 75.7% of total household credit balances) increased to 3.9% y/y at end-October from 3.6% y/y at the end of September. The further acceleration in secured credit balances up to the end of October came on the back of faster growth in mortgage balances. Growth in instalment sales balances, 22.1% of household secured balances and mainly related to vehicle finance, slowed down further to 2.9% y/y to end-October. The downward trend in instalment sales balances growth is in line with new vehicle sales volumes which contracted by 4.5% y/y in the first 10 months of the year.
Household unsecured credit balances (R355,5bn and 24.3% of total household credit balances) saw growth of 6.4% y/y at end October compared with 6.6% y/y at end-September. The lower growth in unsecured credit balances was driven by the components of credit cards (growth down to 6.6% y/y from 7.1% y/y at end-September) and overdrafts (growth down to 4.3% y/y from 8.8% y/y at end-September). Growth in general loans and advances came to 6.6% y/y, up from 6% y/y at end-September.
The value of outstanding household mortgage balances increased to R860,5bn in the 10-month period up to the end of October this year, recording growth of 4.3% y/y over this period. The further increase in mortgage balances growth from 3.8% y/y at end-September was to some extent related to the base effect of declining year-on-year growth in the total outstanding balance up to October last year. Another factor that could also have contributed to the increasing growth in the value of outstanding household mortgage balances is the recently declining trend in the percentage of homeowners that are paying extra funds into their mortgage accounts on the back of rising financial pressures. The value of outstanding mortgage balances is the net result of all property transactions related to mortgage loans, including additional capital amounts paid into mortgage accounts and extra monthly payments above normal mortgage repayments.
The demand for and growth in household credit will continue to be driven by factors related to the economy and household sector finances. Economic and employment growth is expected to remain relatively low over the next 12 to 18 months, with interest rates forecast to rise further during next year and in 2017 in an effort to curb the effect of inflationary pressures. Consumers will face increasing financial strain if these expectations materialise, which may impact their credit risk profiles and access to and affordability of credit. Against this background, growth in household credit balances, including mortgages, is forecast to remain within single digits over the next two years.