Mortgage Barometer – 2nd quarter 2016 SARB new mortgage lending data

2nd Quarter 2016 SARB New Mortgage Lending data showed a 2nd consecutive quarter’s year-on-year decline. This is more-or-less in line with what the FNB Estate Agent Survey has been pointing to for some time, i.e. declining activity levels in the Real estate Market, which usually implies a decline in new mortgage lending with something of a lag.

• Growth in value of new mortgage loans granted was negative for the 1st 2 quarters of 2016.

The September 2016 SARB (Reserve Bank) Quarterly Bulletin showed the value of new mortgage loans granted (Residential, Commercial and Farms) to have declined by -12.51% year-on-year for the 2nd quarter of 2016.

This is a mildly slower pace of decline compared with a decline of -14.57% year-on-year in the 1st quarter. The growth slowing has been significant since the 50.2% year-on-year high reached in the 1st quarter of 2014. However, declines are a fairly normal part of new mortgage loans granted, and such rates of reported decline are still mild compared to as much as -54.7% decline reached in the 1st quarter of 2009.

• Both Residential and Commercial New Loans Granted have been in decline.

Both the Commercial and Residential sub-components were “drags” on the new mortgage grants growth rate in the 2nd quarter of 2016. The value of residential mortgages granted declined by -10.27% year-on-year, while that of commercial mortgages declined by -16.44% in the same quarter.

• The initial of slowing growth in new loans more-or-less coincided with the start of rate hiking in 2014.

The start of the growth slowdown in new loans granted can pretty much be put down to the start of SARB interest rate hiking back in January 2014. After growing by a massive year-on-year rate of 50.18% in the 1st quarter of 2014, growth in the value of new mortgage loans granted slowed sharply to 30.65% in the 2nd quarter of that year, and on to a lowly 6.8% by the start of 2015. 2015 saw some renewed growth strengthening for a while, but further rate hiking, along with the virtual end to any meaningful economic growth last year, more recently seems to have been taking its toll in the 1st half of 2016.

The Residential Market is arguably the more “leading sector” in the Mortgage Market, with Home Loans applicants responding more swiftly to any economic or interest rate changes than their Commercial Sector counterparts. New Residential Mortgage Lending growth peaks and troughs can thus tend to lead the Commercial Property Mortgage Sector by a quarter or 2.

• The FNB Estate Agent Residential Activity Rating points to further near term weakness in new lending.

The FNB Estate Agent Survey’s Residential Activity Rating had been pointing towards such looming weakness in new residential mortgage growth for some time. FNB utilizes this Activity Rating as a “leading indicator”, with its smoothed year-on-year growth peaks leading new mortgage lending growth peaks by as much as 3 or 4 quarters.

After the Residential Activity Rating’s year-on-year growth last showed a “mini-peak” in the 3rd quarter of 2014, it steadily slowed into negative growth territory by the 2nd quarter of last year, and has remained in negative territory since. With a 3 quarter lag, the growth in value of new residential mortgage loans granted showed its last “mini-peak” in the 2nd quarter of 2015, and has since broadly tracked residential market activity lower into negative growth territory.

• Both new loans granted for construction as well as for existing buildings have seen year-on-year decline.

Examining New Mortgage Loans Granted “by application”, i.e. on Existing Buildings vs on Vacant Land and on Construction, the 2 larger categories are seen, i.e. New Loans Granted for Construction and those granted for Existing Buildings, showed year-on-year decline of -24.9% and -11.7% year-on-year respectively.

The small Vacant Land category showed a sharp rise, but not too much should be read into this. With a small value of only R2.1bn for the quarter, this category of new loans granted can be volatile, and heavily influenced by a few relatively large land transactions.

• Loan Payouts and Capital Repayments follow Loans Granted into negative growth territory.

After growth in new loans granted slowed quite sharply, with a slight lag one would expect loans paid out to follow.

In the 2nd quarter of 2016, the value of total mortgage loans paid out declined by -11.3% year-on-year, down from a -2.7% decline in the previous quarter, having steadily slowed all the way from strong positive growth of +52.6% back in the 1st quarter of 2014.

The slower growth in property activity volumes recently has also impacted on Capital Repayments growth since 2014. The value of Capital Repayments for the 2nd quarter of 2016 declined by -14.45% year-on-year, having broadly tracked new loan grants and payouts slower.

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


The 2nd quarter 2016 rate of decline in new mortgage loans granted was slightly less in magnitude, but not too dissimilar, from the 1st quarter’s drop.

Many key economic, and FNB’s own leading property, indicators have long suggested that slowdown was to be expected. FNB believes that the decline is largely due to economic factors along with the lagged impact of interest rate hiking of recent years. New mortgage lending, especially the Residential category, should be expected to behave not too dis-similarly to New Passenger Motor Vehicle Sales (also strongly credit and consumer driven), and these have been in year-on-year decline consistently since early in 2015.

Given the expectation that interest rates may now move sideways for a lengthy period, it is possible that South Africa will see the rate of new lending value decline subsiding somewhat in the near term. But the FNB Estate Agent Activity Rating suggests that decline still has some time to run, and in a stagnant economy, we would not expect to see any meaningful growth any time soon.

Read more here: FNB Mortgage-Barometer_SARB_Q2_Mortgage_Data_14_Sept_2016