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New mortgage lending in decline

house prices resize2016 Q1 South African Reserve Bank (SARB)  New Mortgage Lending data showed a significant year-on-year drop. This according to John Loos, household and property sector strategist for FNB, who explained that some decline has been anticipated, with various FNB indicators of residential activity pointing to an approaching slowdown for mortgage lenders for some time now.

The June 2016 SARB Quarterly Bulletin showed the value of new mortgage loans granted (Residential, Commercial and Farms) to have declined by -14.57% year-on-year for 2016 Q1. This is significantly slower compared with positive growth of +15.2% year-on-year in the previous quarter, and now reflecting a very significant turnaround since the 50.2% year-on-year multi-year high reached in the 2014 Q1. For the Residential Mortgage Lending Sector, 2016 Q1 was the 3rd consecutive quarter of growth slowdown in the value of mortgage loans granted.

According to Loos, FNB’s Estate Agent Survey’ Residential Activity Rating had been pointing towards a slowdown in residential mortgage growth for some time. Loos explained that this activity rating is used as leading indicator – smoothed year-on-year growth peaks leads new mortgage lending growth peaks by as much as three or four quarters.

The activity rating’s growth last peaked in 2014 Q3, with a three quarter lag, growth in the value of new residential mortgage loans granted peaked in 2015 Q2 and has since been tracking residential market activity lower. The largest decline was in the mortgage loans granted on vacant land category (-23%), followed by those granted on existing buildings (-14.85%), and those granted on construction (-11%).

A first quarter Real GDP (Gross Domestic Product) contraction, further rise in interest rates during 2016 Q1, and the FNB Residential Activity rating still firmly in year-on-year decline, suggests that further decline in the value of new mortgage lending is likely in the near term.

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