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SAO PAULO, March 3 (Reuters) - Brazil's economic stagnation, stubborn inflation and swelling budget gap risk endangering a decade-long expansion in mortgage lending by undermining funding for home loans, according to an industry report seen by Reuters ahead of its Wednesday release.
The amount of mortgage loans funded with money from Brazil's Savings and Loans System, or SBPE, rose 3.4 percent last year, the lowest since 2003. Macroeconomic vulnerability threatens the sustainability of SBPE's growth over the coming years, according to a report by structured finance research firm Uqbar Educação.
Rising interest rates are among factors that could hamper allocation of government resources for mortgage credit and the SBPE, the report said. The Rio de Janeiro-based firm urged a return to sound economic policymaking as a way to assure the market's growth is sustainable in the long run.
"Once we regain macroeconomic stability, banking and government mortgage funding sources will gather steam, alongside capital market instruments," the report said.
The report is the latest early warning by industry specialists on the greater headwinds facing Brazil's still incipient mortgage loan industry, where some home buyers are pulling back and more borrowers are beginning to fall behind on their loan installments.
Finance Minister Joaquim Levy, who took office in January, is trying to reverse the budget profligacy that characterized President Dilma Rousseff's first term in office. Economists expect Levy's spending cuts and tax increases to push the economy into recession temporarily before subduing inflation, getting public finances balanced and restoring confidence.
Mortgage lending expanded faster than other types of credit in recent years thanks to a robust job market, steady declines in borrowing costs and improved industry rules. Some of those factors are now showing signs of fatigue, though.
Disbursements for SBPE-backed loans could rise 5 percent this year, a far cry from the 37 percent annual expansion recorded in the past seven years, industry group Abecip recently said. The cooler mortgage market does not appear to pose any systemic risk for banks.
Excluding state-owned Caixa Economica Federal, the exposure of Brazil's banking industry to mortgages remains low. Outstanding home loans, which last year totaled about 500 billion reais ($172 billion), represent about 9 percent of gross domestic product, or the equivalent of 14 percent of outstanding bank credit.
$1 = 2.921 Brazilian reais Reporting by Guillermo Parra-Bernal; Editing by Lisa Shumaker