Ethel Hazelhurst on Business Report:

Johannesburg – Credit extension figures released yesterday sent mixed signals about the need for a further interest rate hike when the Reserve Bank’s monetary policy committee meets next week.

Aggregate figures broadly support the case for an increase in the bank’s official repo rate, after a 3.5 percent increase to 10.5 percent since June last year.

Growth in claims on the private sector slowed only marginally from 22.46 percent over the year to September to 22.27 percent in October.

But a closer look at mortgage loans, which make up nearly half of total credit to the private sector, provides a different perspective. Year-on-year growth in total mortgage advances slowed to 25.3 percent in October from 26.1 percent in September and a peak of 31 percent in October last year.

John Loos, a First National Bank property strategist, said growth in new mortgage loans has fallen below 20 percent.

“There is a natural lag between trend changes in new loan growth and trend changes in mortgages outstanding,” said Loos. “The lag is typically long because of the time it takes capital repayments to respond to trend changes in new loan growth.”

The figure is particularly telling as about 80 percent of mortgage loans are for residential property, according to Loos, an indication that consumers are responding to tighter monetary policy.

Nedbank suggested that outstanding mortgages might have been supported by “homeowners making use of available home loan facilities, at a time when additional credit may be harder to obtain, as a result of the National Credit Act”.

Nedbank noted another lag which accounted for the slow response by borrowers to monetary policy tightening. Corporate credit demand, which makes up roughly 50 percent of total credit demand, reacted slower than consumers to monetary policy changes.”

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