Johannesburg — YET another South African index has predicted that house prices are set to deteriorate even further this year.

Ooba, a mortgage bond originator, said on Friday that prices fell by 4,8% last month and this trend was expected to continue for the remainder of the year.

The average purchase price fell from R818905 in January last year to R779033 in January this year. Saul Geffen, CEO of ooba, (formerly Mortgage SA) said: "The stringent changes to lending criteria implemented by banks at the end of last year have had an immediate effect on the average decline ratios."

Geffen said although interest rates are expected to continue to be cut throughout the first half of the year -- giving home-owners much-needed relief and stimulating the property market -- he expected the oobarometer to continue to record declines in house prices until the second half of this year.

Thereafter the property market is expected to start making a recovery and begin to show positive growth at the end of the year into 2010, he said.

According to the oobarometer, the year-on-year average decline ratio has increased by 15,3% while the month-on-month data reflected a 0,8% increase.

This meant that, last month, the first bank that potential borrowers approached had rejected 58% of the total applications . Also the number of loans declined by one lender and taken up by another in January declined from 38% a year ago to 22%.

"The sharp decrease in the ratio of applications declined by one lender but approved by another indicates that there is a reduced opportunity to obtain approval once one bank declines an application," said Geffen.

He said this was due to the restrictive lending criteria the banks had imposed recently. This had also affected the average deposit as a percentage of purchase price, the average deposit increased by 22%.

Also, the average bond size dropped by 8,4% from R700042 in January last year to R641140 last month. There was a 2,8% drop in month on month average bond size. " With interest rates coming down, the recovery of the property market is shifting towards bank lending policies.

"Banks will need to relax lending ," said Geffen.