Slowing in new mortgage lending in South Africa

Third quarter 2018 new mortgage lending data from the SARB showed a significant deterioration in year-on-year growth in the value of new mortgage loans granted compared to the previous quarter – the rate moving strongly into negative territory.

This increasingly suggests that the mortgage market ended 2018 and started 2019 on a very weak footing, said property strategist at FNB, John Loos.

The quarterly bulletin published in December by the Reserve Bank showed the value of new mortgage loans granted – residential, commercial and farms – to have declined at a year-on-year rate of -15.91% in the third quarter of 2018, down from +6.08% registered in the previous quarter.

The large residential mortgage sub-component slowed into negative territory in the third quarter of 2018, decelerating from +7.45% year-on-year in the second quarter, to a -3.01% decline, FNB said.

However, the second major sub-sector, ie. the commercial mortgage loans segment, appears to have become the greatest “growth drag” in the mortgage lending sector, its year-on-year growth having dropped from a positive +3.17% year-on-year in the second quarter of 2018 to a negative -32.02%.

Viewing new mortgage loans granted “by application”, ie. on existing buildings vs vacant land vs for new construction, the lender highlighted a recent slowdowns in all three applications.

Growth in mortgage loans granted for vacant land declined by -11.4% year-on-year in the third quarter.

“This category’s move into decline is probably one indication of a scaling back in the level of new building activity planned in the near term, reflective of a lack of demand growth for new space in a low growth economy, and rising vacancy rates in existing space,” said Loos.

“Also supporting our expectation that 2019 will be a very weak year for building space completions was a sharp year-on-year decline in the value of new mortgages granted for construction purposes, to the tune of -28.12%.”


New mortgage loans paid out also saw a third quarter growth deceleration, from a positive +4.38% year-on-year rate in the second quarter, to a negative -7.25% in the third quarter, beginning to follow the trend in new loans granted, FNB said.

The trend in the value of capital repayments, which would be driven significantly by loan settlement upon sale of a property, was also in the doldrums, with only slightly positive growth of +1.49% in the third quarter, said Loos.

Looking into 2019, the decline as at the third quarter of 2018 suggests that 2019 is likely starting off a low base, the weakness in new mortgage lending late last year reflecting what appears to have been a weaker economic growth year in 2018 compared to 2017.

Will new lending growth improve?

“Possibly later in the year, given that the base of which growth will comes at the end of 2018 looks to have been very low,” Loos said.

“But any year-on-year growth strengthening is expected to be mild, constrained by expectation of only limited real economic growth improvement from an estimated 0.7% in 2018 to 1.4% in 2019, growth that remains weak and not likely to meaningfully increase the demand for space.

“In addition, 2019 starts with weak business and consumer sentiment, concerns over future policy direction abundant and likely to persist until at least after the 2019 elections, and of course we go into 2019 having just had the first interest rate hike in the current cycle late in November last year.”

Read: How to make money from your home in 2019

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Slowing in new mortgage lending in South Africa