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New mortgage lending slower in 2015 than in 2014

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While still well off its early-2014 growth high, the growth slowdown in the Value of New Mortgages Granted “stalled” late in 2015. But growth in loans paid out slowed, reports John Loos, FNB Home Loans household and property sector strategist.

Not surprisingly, with interest rates rising, 2015 as a whole saw slower new mortgage lending growth than 2014. However, quarter by quarter the growth held up reasonably well later last year, after starting 2015 on a significantly lower note. Still-strong growth in the area of Commercial Property Mortgage Loans granted appears to be a key reason for this, while residential new lending growth was slowing late in 2015.

New mortgage loans granted grew 15.12% in Q42015

The March 2016 SARB (Reserve Bank) Quarterly Bulletin showed the value of new mortgage loans granted (Residential, Commercial and Farms) to have been growing at 15.12% year-on-year for the 4th quarter of 2015.

This is mildly faster than the previous quarter’s 12.4% growth, but substantially slower than the 50.2% year-on-year multi-year high reached in the 1st quarter of 2014.

The major sub-component, Residential Mortgage Grants, was the “drag” on the growth rate in the 4th quarter, slowing further from the previous quarter’s 7% to 3.9% in the final quarter of 2015.

The value of Commercial Property Loans Granted, by comparison, grew at a far stronger 39.5%, having accelerated from the prior quarter’s growth of 23.6%. Much of this relative strength in growth of Commercial Mortgage Loans Granted has to do with something of a “natural lag” on Residential loans.

Residential mortgage grants leading sector

offer to purchase resizeThe Residential Market is arguably the more “leading sector”, with Home Loans applicants responding more swiftly to any economic or interest rate changes. This market has long since begun to respond to rising interest rates since early-2014, as well as to four years of deteriorating economic growth, and slowing growth in new residential loans granted probably suggests that Commercial grants will soon follow that trend at a later stage.

While still well off its early-2014 growth high, the growth slowdown in the Value of New Mortgages Granted “stalled” late in 2015. But growth in loans paid out slowed.

Examining Mortgage Loans Granted “by application”, i.e. on Existing Buildings vs Vacant Land and Construction, we see Construction-related mortgage grants still growing the strongest, to the tune of 38.34% year-on-year. This should not be too surprising, as planned Construction activity trends normally experience a significant lag on market activity, demand and vacancy rates in the existing property market. Therefore, the lagged response of the Building Sector to the post-2008/9 recession Existing Property Market recovery is still playing itself out.

Residential Development probably played a key role in this, having experienced some good growth in value of building completions during 2015. However, this is not to say that all loans granted will translate into loans taken up and paid out, especially in the area of loans granted for construction.

Loans granted for construction off their growth high

However, Loans Granted for Construction are also significantly off their growth high of 160% year-on-year, recorded in the 1st quarter of 2014, so the Development Sector is not entirely unaware of the need to slow its pace as demand for new space likely slows in a deteriorating economy.

And perhaps the growth rate in Mortgage Loans Granted for Vacant Land is a sign of greater caution coming when it comes to future new development.

This category’s growth rate is the lowest of the three, having measured 6.3% year-on-year in the final quarter of 2015, well below the 97.2% peak reached at the end of 2014.

Growth in New loans granted for Existing Property strengthened mildly late in 2015, recording growth of 12.5% year-on-year at the end of 2015. While new loans granted growth did not slow further in the 4th quarter, that doesn’t mean that all new loans granted get utilized.

Mortgage Loans paid out slowing

Therefore, when analyzing trends in the Mortgage Market, growth in Mortgage Loans Paid Out is also an important cyclical indicator.

Here we do see further slowing in growth late in 2015, from 24% year-on-year in the previous quarter to 14.4% in the final quarter of last year.

The slower growth in property transaction volumes recently has also impacted on Capital Repayments growth since early-2014. The value of Capital Repayments for the 4th quarter of 2015 grew by 7.96%, a little above the prior quarter’s -0.7%. However, quarter-to-quarter rates can be volatile, and the most significant point is that this growth is well down on a 36.2% high recorded in the 3rd quarter of 2014.

This slowdown in capital repayments growth should be expected when a slower rate of growth in properties being bought and sold slows the rate of loan settlement on transacting.


vacant land resizeWhile the 4th quarter growth in New Mortgage Loans Granted was mildly higher than in the prior quarter, we don’t see this as a sign of any sustained strengthening ahead in the Mortgage Market. While growth in grants accelerated slightly, this doesn’t mean that it all gets utilized, and indeed the growth in loans paid out slowed late in the year.

The Residential Market is often a “Leading Segment” in the overall Mortgage Market, i.e. it can be a leading indicator of trends to come in the Commercial Mortgage Market and thus in the overall market. The Residential Segment saw its growth in loans granted slow further. Therefore, while growth in overall grants strengthened slightly, it was the “Lagging Sector”, i.e. Commercial Grants growth that contributed to this. However, we feel it just a matter of time before this segment, too, starts to follow the Residential Segment’s growth slower, because many of the economic indicators relating to likes of Retail, Industrial and Office Property have been weak in recent times. Economic weakness should probably begin to drive existing property vacancy rates higher in the near term, and returns on these properties lower, thereby curbing demand growth.

Our FNB Real Economic growth forecast is 0.5% for 2016, still slower than the 1.3% of 2015. This, along with rising interest rates, is likely to be a slowing growth environment for the Mortgage Market.

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Alison Goldberg is the former property editor of Business Day (1985) and the Financial Mail (1991-99). In 1995 she won the Sanlam Financial Journalist of the Year Award. She has edited such titles as National Constructor and The Miner in Australia and has freelanced for The Star, The South African Jewish Report and The Jerusalem Post.

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