New data from FNB reveals an improvement in the number of households in arrears when it comes to paying off their mortgage.
And the bank said that it is conceivable that mortgage arrears levels could improve even further in the near term should interest rates continue to move sideways.
Total Arrears, according to NCR (National Credit Regulator) data, had risen a fraction in early 2016, from a low of 8.2% of the value of total mortgage loans outstanding in the final quarter of 2015, to 9.4% in the 2nd quarter of 2016.
However, following a move by the South Africa Reserve Bank to stall interest rate hikes after March 2016, this percentage receded once more to 8.8% of total mortgage loans by the final quarter of last year.
This trend in the face of weak economic growth can be explained by ongoing slow (and good quality) new mortgage lending growth, which translates into steady decline in the mortgage debt-to-disposable income ratio, which in turn contributes to the declining trend in the household sector debt-to-disposable income ratio, FNB said.
From a high of 49.2% as at the first quarter of 2008, the household sector debt-to-disposable income ratio has declined to 33.9% by the final quarter of 2016.
This is also down from an all-time high of 87.8% in the first quarter of 2008 to 73.4% by the end of 2016.
“This has greatly reduced the vulnerability of the household sector to events such as recessions interest rate hikes since 2008,” FNB said.
It also noted that bonded property transactions by individuals saw a year-on-year decline in the first three months of 2017 to the tune of -4.5% in terms of volume of such transactions, along with a decline in the value of such transactions.
The lender said that key to rates continuing to move sideways will be a relatively well-behaved rand. “Any policy announcement of political event that dents investor sentiment severely and knocks the rand sharply weaker can lead to renewed interest rate hiking.”
“We expect a relatively cautious consumer in 2017 and even the few years beyond, lifting their savings rate mildly and going slowly on borrowing growth in a weak economic and employment environment,” FNB said.
“Perhaps ironically, tough economic times and resultant weak consumer confidence levels can do a lot of good in terms of promoting more cautious financial behavior and a decline in indebtedness relative to disposable income. This reduces vulnerability of households to interest rate hikes,” it said.