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Property Talk

Property Talk

Author: Andreas Wassenaar
Date: 2019-02-01

Residential Mortgage Loans

Mortgage finance is the fuel that drives the property industry. By watching the trends in the demand for mortgage finance we are able to get a sense of expected future market activity.

The SARB leading indicator is an excellent predictor of the general direction of the value of mortgage loans granted. This index grew at 6.55% at the beginning of 2017, which was its recent peak, after which it slowed to 2.05% by the third quarter of 2018, thereby predicting that we were due for slower new mortgage lending growth.

This was confirmed by the December 2018 SARB Quarterly Bulletin report, which showed that the value of new mortgage loans granted (Residential, Commercial and Farms) to have declined at a year-on-year rate of -15.91% in the 3rd quarter of 2018 from +6.08% positive growth rate registered in the previous quarter.

If we consider the sub-components of mortgage loans granted, we see that according to FNB's published figures the large Residential Mortgage Loans sub-component did slow down to -3.01% in the 3rd quarter of 2018 from +7.45% year-on-year growth of the 2nd quarter. The Commercial Mortgage Loans segment subsided more significantly from +3.17% in the 2nd quarter to -32.02% in the 3rd quarter 2018.

This relatively largely decline in the commercial sector is indicative of the relatively larger impact very low GDP growth and business confidence has on expansion decisions in the business sector.

If we consider the new mortgage loans granted by application - on existing buildings versus vacant land versus new construction, we see that FNBs figures show a slowdown in all 3 applications.

The largest decline by application type was the -28.12% reduction in new mortgages granted for construction purposes indicating that building space completions will be weak for 2019. New mortgages granted on existing buildings declined by -14.38%. The mortgage loans granted for vacant land declined by a lesser -11.4% year-on-year in the 3rd quarter of 2018.

The growth of new mortgages paid out declined in line with the decline in new mortgages granted. FNB report that this figure declined to -7.25% in the 3rd quarter 2018 from +4.38% in the prior quarter. With fewer sales happening the value of capital repayments in the 3rd quarter 2018 remained low at +1.49%.

The forecast for 2019 therefore, based on the most recently published figures is that mortgage lending is expected to start slow off a low base reflecting the direction of the SARB leading economic indicator.

The recovery in mortgage lending as the year progresses will depend on real economic growth. This has been estimated to be 0.7% for 2018 but improving to a predicted 1.4% for 2019. Sentiment is likely to play a significant role this year given the uncertainty currently prevailing within the political landscape.