House prices could rise 12 percent year-on-year in nominal terms during 2006, the Absa House Price Index projected on Wednesday.

This, based on a forecast 50 basis points hike in interest rates, which could take the prime interest and variable mortgage rates to 12.5 percent by year end, said Absa senior economist Jacques du Toit.

Contributors were the projected increase in CPIX inflation to six percent by year end on the back of a weaker rand exchange rate and the high international oil price.

Also responsible were the "massive" deficit on the current account of the balance of payments in the first quarter; and the ongoing high year-on-year private sector credit extension, with mortgage advances growth still at 30 percent.

The index noted that the average cost of a middle-of-the-road house was R798 000 in January.

However, there had been average real year-on-year growth in house prices of 11.6 percent in the first five months of 2006.

In real terms, there was year-on-year growth of 10.0 percent in May after 11.4 percent in April — the lowest since March 2003 when it was 9.2 percent.

The average nominal year-on-year growth in house prices came to 15.3 percent in the first six months of this year with nominal year-on-year growth of 13.6 percent last month — the lowest since January 2002 — following that of 14.3 percent in May.

Based on an average mortgage interest rate of 10.87 percent last month, the monthly mortgage repayment on a 100 percent mortgage on a house of R797 930 was R8166 over 20 years. This was 16.3 percent higher than in May 2005.

The gross monthly household income required to qualify for the mortgage (of which the monthly repayment does not exceed 30 percent of income) was R27 219.

The index is calculated on an upper cut-off price of R2.6-million for residential properties in the middle segment of the market — houses of between 80sqm and 400sqm.

It differentiates between affordable housing; the middle segment; and the luxury market.

Sapa

SA COMPANIES & BUSINESS INFO Trying to find your way around South Africa's corporate landscape? Looking for a info on a particular company or sector? After the latest business, financial or market news? Here's a quick directory of links to get you started.

MORE BUSINESS NEWS Consumer confidence remains high Competition is coming for Telkom Bank calms internet fraud fears Inflation knocks house price growth Fuel level proposal slammed New vehicle sales continue to surge Business confidence dips on crime Transnet happy with jumping profits SA business conditions remain buoyant Telkom, Vodafone 'not in takeover talks' SABMiller buys two US brands Guma appointed as SARB advisor R7bn plan to aid textile industry Trade deficit nearly triples in May Credit extension will worry SARB