May Mortgage numbers and mortgage market overview - John Loos FNB
John Loos - FNB

The Mortgage market continued its slowdown in May, with year-on-year growth in the value of total mortgage loans outstanding slowing once again from 21.9% in April to 20.6% in May. Whilst it used to be fashionable to attribute the slowdown to the residential component of the mortgage market, these days it must be said that the slowdown is more broad-based.

Indeed the residential mortgage market has the dominant influence on the overall weakening trend because of its sheer size, with residential mortgage loans accounting for about 80% of the total value of the country’s mortgage book. In April, year-on-year growth in residential loans recorded 20.8%, two percentage points down on the 22.9% of the previous month.

However, the value of outstanding commercial property mortgage loans is also growing slower these days at 27.3% as at April, and although this more volatile number is up on the previous few months, it is sharply down from its 41.6% peak late in 2006.

If one takes a look at new loans granted, it is clear that the Monetary Policy Committee of the SARB is putting it rather politely when it suggests that the economy has been responding to rising interest rates. In the first quarter of 2008, new residential loans granted showed negative growth (decline) in value of -16.7% year-on-year, while new commercial loans fell in value by a massive -61.3%.

One can also examine new mortgage loans according to “application”, and one also sees negative growth across the board, i.e. whether it be loans on existing buildings, for construction of buildings or on vacant land.

The effect of this broad-based slump in new loans granted, since back in last year, has been to take the value of loan payouts into negative growth in the first quarter of this year. Capital re-payments on loans have been catching up with payouts, and all of this suggests that the growth in value of mortgage loans outstanding is set to decline steadily for some time to come.

The negative impact of further rate hiking in April and June still has to be fully reflected in the figures, as does the lag time between new loans granted and trends in loans outstanding.

Given the spectacular slump in new loans to date, it is possible that the value of mortgage loans outstanding will reach negative growth territory in 2009

Article by: John Loos - www.fnb.co.za