Second quarter New Mortgage Lending shows small positive growth rate

Second quarter ‘2019 SARB New Mortgage Lending’ data, released in the September SARB Quarterly Bulletin, showed continued “mediocrity”, but with the value of new mortgage loans granted showing a small positive growth rate of 5.66%.

This is a mild improvement from the prior quarter’s -7.8% decline. To give perspective as to why we say “small positive growth rate”, strong growth rates in this variable can get up to as high as 50% and even beyond on the odd occasion.

The mild improvement arguably reflects a slightly better economic growth rate in the second quarter, compared to a contraction in the first quarter.

With ‘New Mortgage Lending’ often being a more “leading” part of the economy, FNB sees that its cyclical growth turning points can traditionally often be in line with or close to, timing-wise, the SARB Leading Business Cycle Indicator.

The SARB Leading Indicator’s slightly diminished rate of year-on-year decline in the second quarter, compared to the third quarter, had led FNB to expect the decline in new mortgage lending could begin to “level off”, and this return to mildly positive growth in new mortgage loans granted in the second quarter may be a sign of such a “leveling off

But the fact that the leading indicator remains in year-on-year decline territory, even going into the third quarter, leads FNB to expect that the pace of new mortgage lending growth would remain weak at best.

Commercial mortgage loans were a positive growth contributor

The large new residential mortgage sub-component saw its growth slow slightly in the second quarter of 2019 to 2.98% year-on-year, down from 6.09% in the first quarter.

It was therefore the ‘New Commercial Mortgage Grants’ component’s strengthening, from a year-on-year decline of -29.6% in the first quarter to positive growth of +11.15% in the second quarter of 2019, that caused overall new loans granted growth to turn mildly positive in the second quarter.

Despite some modest growth in ‘New Commercial Loans Granted’, however, the value of these grants remains -10.4% down on the multi-year high for the corresponding quarter of 2014, reflecting the economic weakness  and low business confidence of recent years.

Mortgages by application

FNB also views ‘New Mortgage Loans Granted “By Application”’, i.e. on ‘Existing Buildings vs Vacant Land vs for New Construction’.

Typically, market and economic slowdowns bring about a more extreme decline in new building activity than in existing property transactions, and this means that Mortgage Lending for New Construction of buildings is the most cyclical of the applications.

Interestingly, the most recent quarter’s data shows some positive growth in ‘New Mortgage Loans Granted for Construction’, to the tune of +11.67%, while ‘New Loans Granted for Existing Buildings’ showed a slower +4.48% growth rate. The strongest growth, however, was in the area of ‘New Mortgage Loans Granted for Vacant Land’, recording 45.29% year-on-year in the second quarter. However, FNB would caution against reading too much into this recent spike, as this category makes up only a tiny 3.3% of total grants, and is thus subject to huge volatility.

With new building planning at mediocre levels of late, and economy-wide business confidence weak, FNB is not yet convinced that a sudden positive growth rate in ‘New Mortgage Loans Granted for Construction’ is sustainable either.

In what are still tough economic times, FNB expects ‘Loans Granted on Existing Buildings’ to be the relative “out performer”.