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MR JOHN LOOS

A SENIOR ECONOMIST PROSPECTIVE

New Mortgage Lending data for the final quarter of 2021 showed mild year-on-year decline in the value of new mortgage loans granted, as a lack of new interest rate stimulus began to have an influence.
4th Quarter 2021 SARB New Mortgage Lending data, released in the March 2022 SARB Quarterly Bulletin, confirmed the sharp deceleration in growth from 2 quarters prior, and the onset of mild year-on-year decline in the value of new mortgage loans granted.

From a massive +109.7% year-on-year growth spike in the 2nd quarter of 2021, the growth rate in total value of new mortgage loans granted slowed sharply to a negative -0.56% in the 3rd quarter and then mildly further into negative territory to the tune of -0.506% year-on-year in the final quarter of 2021.

The huge 2nd quarter 2021 spike was to a large degree due to a low base effect created by the hard lockdown of the economy in the 2nd quarter of 2020. Thereafter, the 2020 base rapidly got higher due to the easing of lockdowns and very low prevailing interest rates after the sharp early-2020 SARB rate cuts. Those cuts fueled a surge especially in new residential mortgage demand in the 2nd half of that year.

The mild year-on-year declines in the final 2 quarters of 2021 thus reflected higher base effects created late in 2020, a lack of further interest rate stimulus following the early-2020 interest rate cuts, and then late in 2021 the onset of the SARB interest rate hiking cycle as CPI inflation became more troublesome.

SLOWING NEW RESIDENTIAL LOANS CATEGORY IS THE KEY INFLUENCE IN DIRECTION DUE TO SHEER SIZE, BUT 4TH QUARTER COMMERCIAL MORTGAGE LOANS DECLINED MORE SIGNIFICANTLY

The large New Residential Mortgage sub-component is normally the key influence on the direction of the value of total new mortgage loans granted due to its sheer relative size.

And indeed, the growth in value of new residential mortgage loans granted has slowed from a 135.30% year-on-year growth peak in the 2nd quarter of 2021, to record slight -2.64% and -1.58% year-on-year declines in the 3rd and 4th quarters of last year respectively.

However, it was the value of new commercial mortgage loans granted that declined by a more significant -16.43% year-on-year in the final quarter of 2021, after having seen its growth rate slow from 51.97% in the 2nd quarter of 2021 and 8.5% in the 3rd quarter.

The new residential mortgage growth slowdown makes a lot of sense. Residential mortgage demand is typically more sensitive to interest rate movements than commercial demand. This category thus grew very strongly in the latter stages of 2020 after hard lockdown restrictions eased, home buyers responding strongly to the sharp SARB interest rate cuts that took place just prior to those lockdowns. And so, by the 2nd half of 2021, the opposite was beginning to happen, new mortgage demand just starting to decline due to a lack of further interest rate stimulus.

The 4th quarter decline in new commercial mortgage loans granted seems less easy to explain by economic factors, and probably more by the fact that this category is far smaller than residential and thus more volatile from quarter to quarter. The Commercial Property Sector is more influenced by economic growth trends than Residential, and less by interest rates than Residential, so we would expect that there is still some growth momentum left in new commercial mortgage lending despite interest rate hiking.

Certainly, our FNB Property Broker Survey pointed to ongoing increase in sales activity in all 3 major commercial property classes, i.e., Industrial, Retail and Office, through 2021 and early in 2022, whereas FNB’s Estate Agent Survey had shown residential sales activity already down from its post-hard lockdown highs.

MORTGAGES BY APPLICATION

We also view New Mortgage Loans Granted “By Application”, i.e., on Existing Buildings vs Vacant Land vs for New Construction.

The data shows the large “Existing Buildings” category having declined by -5.22% year-on-year in the 4th quarter of 2021.

A mildly more significant decline was recorded in the “Construction” category to the tune of                 -6.96%.

However, growth in New Mortgage Loans Granted for Vacant Land remained in positive territory to the tune of 21.71% year-on-year, possibly suggesting that the industry is still planning for some growth in new construction to come in 2022. And indeed, on the residential side of building statistics, solid growth in building plans passed in the January 2021 data suggests that new mortgage lending for construction may not be finished growing just yet, despite a 4th quarter decline.

NEW LOANS PAID OUT VS CAPITAL REPAYMENTS

New Mortgage Loans Paid Out saw a resultant slowdown in growth to record 1,06% year-on-year by the final quarter of 2021.

The trend in the Value of Capital Repayments, which would be driven down by slower growth in loan settlement upon sale of properties, was thus also showing slower growth later in 2021, from 73.54% year-on-year in the 2nd quarter to 31.41% in the final quarter.

CONCLUSION

The slowdown in new mortgage lending growth to negative rates was very much as expected. It was caused by a far higher base being created by especially the residential demand surge in the latter half of 2021. Then, a

lack of further interest rate hiking since early-2020 caused the demand stimulus to wear thin.

More recently, the onset of interest rate hiking since late-November 2021, resulting in 3 x 25 basis points to date, should be expected to cause further decline in the residential component. But despite a 4th quarter year-on-year decline in the commercial mortgages, we would expect some further mild positive growth in this category in at least the 1st half of 2022 before further expected rate hiking takes its toll, with FNB Property Broker Surveys still pointing to accelerating sales activity in the Commercial Property Market in recent times.

2022-01-28T00:00

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