Whatshot
Property Talk
Property Talk
Date: 2017-06-23
Have you ever wondered what percentage of mortgage bonds in South Africa are regarded as non-performing by the banks or bad debts It is for good reason that there is a lot of small print on the mortgage debt agreement document you sign when registering a new bond over a property.
The banks have long learnt that to ensure compliance and the ability to recover non-performing loans there has to be an agreement in place that provides them that opportunity.
The latest figures published by the National Credit Regulator indicate that the value of mortgage accounts that are in arrears expressed as a percentage of the value of total mortgages is 8.8%, down from a recent peak of 9.4% in the 2nd quarter of 2016, and significantly down from the 16% of 2009. The number (rather than value) of mortgage accounts in arrears reflect a similar growth trend, now recorded at 9.03% down from 9.73%.
A mortgage account that is in arrears for a month or so does not however mean it will become a bad debt to the bank. As soon as the mortgage repayments are 90 days or more in arrears, then the bank's classify the account as "non-performing" and the legal process typically commences.
The current figures for these non-performing loans is a far smaller 3.34% of total mortgages. The average rates were 3.4% for 2015 and 3.3% for 2016. The forecast for 2017 is expected to be 3.1%, declining to 2.8% for 2018. This downward trend in the value of the non-performing loans is interesting given the recessionary economic climate we find ourselves in.
The good news is that our total household indebtedness is declining when compared to our total disposable income. The household mortgage debt to disposable income ratio is now down to 33.9% from its peak at 49.2% in 2008. This improvement has been the driving force behind the total household sector debt to disposable income ratio declining from 87.8% in the 1st quarter of 2008 to its current 73.4%.
When you owe less money you are less vulnerable to changes in income and therefore better to weather the economic storms that may pass by. As of April 2017 mortgage lending growth is ticking away at 3% year-on-year according to FNB's latest Mortgage Barometer Report. Believe it or not, nominal disposable income growth is currently a far higher 6-7%. Given that total household credit growth is a mere 2.9% we can expected our debt to disposable income measures to improve further.
If you are a retailer selling a product that is largely credit sensitive or dependent then these figures represent relatively sluggish growth of your sales. However the positive result is that households are strengthening their balance sheets all this time and are less likely to experience financial stress.
The continued improvement of our overall debt service ratio depends on interest rates moving sideways. This has been the case recently and to a large extent depends on the performance of our rand exchange rate. A sudden depreciation in the Rand as we experienced in January 2016 translates immediately into higher domestic prices and in turn puts upward pressure on domestic interest rates.
Currently the Rand is trading at 12.8 to the US Dollar, which represents a 15.24% improvement for this year alone so far. This is despite the political storms South Africans have faced recently and the wild swings in our exchange rate that resulted. In the case of South African politics at the moment, no news is good news, so lets hope for some of the same "no news".