Mortgage advances for October continue to decline in year-on-year growth from 16,6% in September to 16,1% in October according to data released by the South African Reserve Bank today.

The decline is the continuation of a lengthy trend that started back in late-2006, and is the result of capital repayments steadily narrowing the gap with the plummeting value of new mortgage loans granted.

Although the breakdown for banking mortgage data runs a month behind the headline mortgage figure, September BA900 numbers, John Loos, property strategist at FNB Home Loans Division, says it gives an ongoing indication that it is residential mortgage advances, by far the largest mortgage category, that are largely responsible for the declining growth in the overall mortgage market. Residential mortgage advances (78,3% of total banking sector mortgage advances) continued their steady growth decline in September from 15,3% in August to 14,5%.

The smaller commercial mortgage advances component (21% of total banking sector mortgage advances), showed slightly slower but still strong growth of 26,3% in September year-on-year, compared with 27,4% in the previous month, a reflection that although still in a healthier state than residential property, the commercial property segment is also feeling the pinch in these tough economic times.

The small farm mortgages (0,7% of total mortgage advances of banks) continued to accelerate its growth rate to 24,6% year-on-year in September from 20,9% previous.

Household sector outstanding credit growth as a whole showed a virtually unchanged growth rate of 17,5%.

“However,” says Loos in his comments on the data, “ it is unlikely that this is the end of the broader declining growth trend in this figure. In reality, total household credit growth is significantly lower, and growth numbers during the current year have been artificially inflated by a change in the reporting methodology at the end of 2007.

“Therefore, a sharp drop in year-on-year household credit growth should be witnessed early in 2009 when the effect of 2007’s low base exits the year-on-year growth numbers.

“Therefore, the still high growth in the monthly household sector credit number is due to technical reasons, and it is likely that in reality a far lower growth number implies that the household debt-to-disposable income has been continuing its decline which started back in the second quarter.

Loos, in his outlook, says the outstanding mortgage advances situation is still only partially reflecting the sharp decline in new mortgage loans granted, especially on the residential side (as at June -35% year-on-year negative growth).

“The long leads and lags between the granting of loans and capital repayments are the reason for mortgages outstanding still showing growth and definitely not any demand growth for new loans, and the deterioration in year-on-year growth could well continue to near 0% by mid-2009.”

His anticipation is still for residential property, and thus new mortgage demand, to begin to pick up gradually in 2009 on the back of expected interest rate cuts starting early next year (although, we must not count a December 2008 rate cut out). Declining commodity prices and inflation numbers in recent months have indeed boosted the probability of interest rate cuts.

“It must be emphasised, though, that improvement in residential mortgage demand is likely to be gradual despite anticipated interest rate cuts, as very weak economic growth (hampered by a poor global economic situation) may imply further job losses in the economy in 2009, curbing the pace of recovery in household sector confidence.

“In addition, given the abovementioned leads and lags between new loans and capital repayment trends, the positive impact of any recovery in residential demand in 2009 would probably only be seen in the outstanding mortgages number well-into 2010.” article courtesty www.rodneyhayter.com