Why mortgage credit acceleration may be short-lived
FNB Home Loans household and property sector strategist John Loos reports mortgage credit to households continued to accelerate mildly, contributing to further acceleration in total household sector credit growth.
This has contributed to a further slight increase in overall household sector credit growth.
“Although the cumulative growth acceleration of recent months has become noticeable, we don’t foresee too much further growth acceleration, as certain key leading indicators for both the economy and the residential market point towards slowing in new mortgage lending growth to come,” says Loos. “In addition, non-mortgage credit growth has been slowing of late.”
- The value of household sector mortgage credit outstanding grew by 4.3% year-on-year in October. This represents a further acceleration from a low of 2% recorded as at October 2014.
- The gradually rising mortgage credit growth has contributed to a rise in overall household sector credit growth from 3.2% year-on-year as at May 2015, to 4.5% by October 2015. Working partly against the acceleration in total household sector credit growth was a slight slowing in non-mortgage credit growth, from 5% year-on-year in September to 4.7% in October.
- The acceleration in total household sector credit growth does raise a mild concern, because should it continue to rise, it could “scuttle” the multi-year trend towards a lower household sector debt-to-disposable income ratio – a trend the FNB believes to have been a positive one.
- There is little in the way of either positive or negative “fireworks” in the new mortgage lending environment. Around mid-2015, new bonded registrations in the deeds offices were showing solid double-digit growth after a lull early in the year (10.6% year-on-year in the 3rd quarter). But this may be short lived, with the leading indicator pointing to near-term economic weakness, which the bank expects to begin to constrain new mortgage lending growth.
- Recent months appear to have brought a slightly lower effective home loan approval rate according to Ooba stats, but it is too early to tell whether this is the start of any trend change, or whether it is merely normal month-to-month volatility. Recent renewed interest rate rises may have played a role.
- The home loan interest rate differential above prime rate has been gradually declining, however, as the mortgage market gets mildly more competitive on pricing.
- Investec, and to a lesser extent Firstrand, have been the two noticeable mortgage market share gainers in recent times.