Second quarter 2022 new mortgage lending data, published by the South African Reserve Bank in its September 2022 Quarterly Bulletin, points to a weakening in growth from the prior quarter and a shift towards a year-on-year decline in the value of new mortgage loans granted.<\/p>\n
Property experts have already warned against the negative impact on the property market of rising interest rates in recent months.<\/p>\n
From a previous quarter\u2019s positive growth of 5.34% year-on-year in the first quarter of 2022, the growth rate in the total value of new mortgage loans granted slowed to a negative 9.35%, noted John Loos, property sector strategist at FNB Commercial Property Finance.<\/p>\n
This represents the second quarter of negative growth in the past three quarters.<\/p>\n
“The year-on-year decline is not surprising, given that economic growth slowed significantly in the second quarter, while inflation continued to surge on the back of food and petrol price spikes, and the SARB continued to hike interest rates at an accelerated pace,” he said.<\/p>\n
The slowdown in new mortgage loans approved is due to a weakening in both residential and commercial mortgage loans approved, said FNB.<\/p>\n
“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.<\/p>\n
“And indeed, the growth in value of new residential mortgage loans granted has slowed from a positive 7.4% year-on-year in the first quarter to a negative 1.58% in the second quarter,” said Loos.<\/p>\n
However, it was the value of new commercial mortgage loans granted that declined by a more significant 24.31% year-on-year, after having seen a slight 2.5% negative rate in the prior quarter.<\/p>\n
The FNB Property Broker Survey had pointed to declines in sales activity levels in office and retail property markets in the second quarter, and these indications of slowing demand for property appear to have been reflected in declining new commercial mortgage loans, said the property specialist.<\/p>\n
Earlier, FNB\u2019s Estate Agent Survey had already shown residential sales activity down from its post-hard lockdown highs, this, too, was seemingly reflected in slower new residential mortgage loans granted, he said.<\/p>\n
Mortgages by application<\/strong><\/p>\n The data shows the large Existing Buildings category as having declined by 9.4% year-on-year in the second quarter of 2022.<\/p>\n “A slightly positive 1.42% growth rate in the \u201cConstruction\u201d category, we believe, is still being supported more by residential developments, which is an overhang of the strong demand surge in residential property back in 2020 on the back of sharp interest rate cuts that year.<\/p>\n “In the post-lockdown era, residential building activity has been significantly stronger than commercial property building activity,” said Loos.<\/p>\n However, New Mortgage Loans Granted for Vacant Land declined sharply by -48.85, possibly suggesting that the industry is planning for significantly less new construction to come in the near term.<\/p>\n New loans paid out vs capital repayments<\/strong><\/p>\n New Mortgage Loans Paid Out have seen a resultant growth slowdown in recent quarters to only 1.07% year-on-year in the second quarter of 2022.<\/p>\n “The trend in the Value of Capital Repayments, which would be driven down by slower growth in loan settlement upon sale of properties in a slowing market environment, was thus also showing slower growth, to the tune of a negative 2.83% in the same quarter,” said FNB.<\/p>\n “The slowdown in new mortgage lending growth to negative rates was very much expected. It was caused by a far higher base being created by especially the residential demand surge in the latter half of 2021.<\/p>\n “Then, the SARB began to hike interest rates in November 2021 and has hiked by 275 basis points to date,” Loos pointed out.<\/p>\n It is these interest rate hikes, along with economic growth slowing in a global recessionary environment, that are believed to be key to the slowdown in new mortgage lending, he said.<\/p>\n “These events should be expected to cause a further near-term decline in new mortgage lending, given a certain lag time for interest rate hikes to take full effect on borrowing demand, and given that the SARB has continued to hike interest rates into the third quarter.”<\/p>\n FNB expects further rate hiking at the November Monetary Policy Committee meeting too.<\/p>\n
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