What you can expect from banks when you apply for a home loan in South Africa right now

Home Loan Source: Google Images

New mortgage lending data for the  fourth quarter 2018 shows a further year-on-year decline in the value of new mortgage loans granted by local banks.

However, the March 2019 SARB (Reserve Bank) Quarterly Bulletin showed the value of new mortgage loans granted to residential, commercial and farms to have declined at a year-on-year rate of only -2.45%, after a -15.91% decline in the third quarter.

“With new mortgage lending often being a more “leading” part of the economy, we see that its cyclical turning points are traditionally often in line with or close to, timing-wise, the SARB Leading Business Cycle Indicator, said FNB property sector strategist, John Loos.

“This Leading Indicator had seen its “mini-recovery” in year-on-year growth peak at 6.54% as at the start of 2017, where-after it has broadly slowed to a -0.06% decline in the fourth quarter of 2018.

“The leading business cycle indicator had thus been suggesting that we were due for slower new mortgage lending growth after that mildly improved period in late-2017/early-2018, and that proved to be more-or-less the case in the second half of 2018,” he said.

The large residential mortgage sub-component recovered slightly in the final quarter of 2018 to record slow year-on-year growth of 2.7% in the value of new loans granted. This is still negative in real terms, were one to adjust for general economy-wide inflation, Loos said.

FNB noted that the commercial mortgage component remains in negative territory to the tune of -9.58% year-on-year, albeit less negative than the -32% decline of the prior quarter.

Mortgages by application

Growth in mortgage loans granted for vacant land spiked to a positive 125.43% year-on-year. However, FNB pointed out that that this category makes up only a tiny 3.3% of total grants.

“With new building planning in the doldrums, and economy-wide business confidence weak, we are not yet convinced that this 4fourth quarter surge represents any sustainable demand strengthening in the vacant land market,” said Loos.

The two large applications remain in the doldrums. The value of new mortgages granted for construction purposes showed slight positive growth to the tune of +2.69%, after a sharp -28.12% drop in the prior quarter. By comparison, new mortgage loans granted for existing buildings declined year-on-year by -5.3% in the fourth quarter, a lesser magnitude of decline compared to -14.4% in the previous quarter.

“Given that we do not anticipate any interest rate movement in the first half of 2019, it is up to general sentiment in the economy along with actual economic growth performance to drive new mortgage demand,” said Loos.

“Perhaps the most up to date high frequency indicator of market transaction levels is the SARS transfer duty revenue number, which showed -10.9% year-on-year decline in value in January. While this includes cash transactions too, it probably gives a reasonable idea of broad market weakness that extends to the mortgage lending component too,” he said.