Four years stagnating economic growth and two years of moderate interest rate hiking have slowed total mortgage lending growth from a high early in 2014. The slowing growth in the FNB Estate Agent Residential Activity rating, since late 2014, points to further slowing in new mortgage lending growth in the near term.
This is according to John Loos, household and property sector strategist at FNB Home Loans, who explains the SA Reserve Bank’s Quarterly Bulletin for the third quarter shows the value of new mortgage loans granted (residential and non-residential) to have been growing at 12.4% year-on-year for the third quarter as a whole.
“This is mildly slower than the previous quarter’s 15.1% growth, and substantially slower than the 50.2% year-on-year high reached in the first quarter of 2014,” says Loos. “The major sub-component, residential mortgage grants, was the ‘drag’ on the growth rate in the third quarter, slowing from the previous quarter’s 11.3% to 7% in the third quarter of 2015.”
The value of commercial property loans granted, by comparison, grew at a stronger 23.6% – still a slowdown from a 163% high reached in the first quarter of 2014.
Vacant land vs existing buildings
Examining mortgage loans granted according to a different split, (existing buildings vs vacant land and construction), construction-related mortgage grants are still growing the strongest – to the tune of 33.76% year-on-year.
“However, this did slow from the prior quarter’s 88.6%,” says Loos. “In addition, vacant land mortgage grants have seen growth slow for three consecutive quarters, from 97.2% year-on-year in the final quarter of 2014, to 5.3% by the third quarter of 2015. Such slowing in vacant land mortgage grants growth may suggest a lack of growth in future planning of new development projects, which should see construction mortgage growth slowing further in the near term.”
Loos explains that existing building mortgage growth is normally the least cyclical of the three. “This category peaked at a far lower 40.9% year-on year growth than the other two in the first quarter of 2014, but has also seen a slowdown in growth to 9.8% in the third quarter of 2015,” he says. “The slower growth in new loan grants has impacted on mortgage payout growth since early 2014. The value of mortgage loan payouts for the third quarter of 2015 grew by 24%, similar to the prior quarter’s 22.5%, but well down on the 52.6% year-on-year high of the first quarter of 2014.”
The toughening economic and interest rate times are being reflected in grants and payouts, as well as in growth in the value of capital repayments, which dipped into negative growth territory in the third quarter, to the tune of -0.7% year-on-year, for the first time since the third quarter of 2013.
Loos calls it
“The slower third quarter growth in new mortgage loans comes as little surprise,” Loos says. “Interest rates have been gradually rising since early 2014, and economic growth has been slowing for the past four years, and these forces must ultimately have an influence. The overall mortgage market is dominated by residential property.
“Our FNB Estate Agent Survey Activity rating can thus be used as a usefully leading indicator for new mortgage lending growth. The smoothed version of this Residential Activity Indicator has been pointing towards slower growth since the final quarter of 2014. The time lag between peaks in growth in the Residential Activity Indicator and that of new residential mortgage loans granted is usually between two to four quarters. The timing of the slower third quarter new residential mortgage grants growth is thus more or less to be expected, and it appears that the second quarter of this year represented a ‘mini-peak’ in new mortgage lending – three quarters after the last ‘mini-peak’ in activity growth.
“The shift in more recent quarters to year-on-year decline in the Residential Activity Rating points to further near term weakening in new mortgage lending growth.”