Tougher rules for access bonds to hurt consumers
October 23, 2008
By Tom Robbins
Cape Town - A significant decline in funding from bank access bonds will cut an important source of household expenditure and could shrink consumer spending by up to 5 percent, according to new research by Cadiz Securities.
Last Tuesday Absa Home Loans, the country's largest mortgage lender, said it would amend the terms of its access facility on its home loans.
Cadiz analyst Shamil Ismail argues that other banks may follow suit, threatening the consumer's "surprising" recent ability to cope with higher non-housing debt in the tough cycle.
"In effect, most customers will have to formally apply to gain access to any equity in their home loans," according to Ismail.
Applications would be subject to the affordability criteria of the National Credit Act (NCA), "which we believe may result in a significant number of rejections".
Average mortgage readvances in the first six months of this year were R6.7 billion a month.
"We calculate that the annualised value of readvances, R80 billion, amounts to 11 percent of annual consumer spending power of R732 billion," he said.
Ismail estimates that up to 50 percent of refinance applications may be rejected, based on research into the impact of the NCA on furniture retailers that offer credit.
"The sharp curtailment in access to this source of funding could shrink … consumer spending power by as much as 5 percent, in our opinion."
According to Statistics SA, the decline in retail sales has been accelerating. August sales at constant prices were down 5.5 percent.
Ismail believed that although some households might have been able to balance their budgets during the challenging consumer cycle by tapping into the equity of home loans, default rates might now rise.
He said Reserve Bank figures showed that the proportion of readvances to total advances had increased "substantially".
While total mortgage advances declined from February, readvances rose from 22 percent of total advances in January to 33 percent in June.
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