Bugle Sales Talk Editorial

Author: Andreas Wassenaar
Date: 2015-11-06

I have often said that mortgage credit is the fuel that drives the property market. Specifically it is the growth in the household sector mortgage credit outstanding that is of interest to us who want to get an understanding of the direction property prices are heading. As of September this year mortgage credit outstanding in South Africa, according to FNB's recent report on the status of the mortgage market, grew by 3,8%.

This might not sound like much but it is up significantly on the 2% recorded in October 2014. Rising growth in mortgage credit is generally a good sign for estate agents as it reflects the underlying property transactions that accompany the provision of mortgage debt. Thankfully the crazy days of 24,6% growth in non-mortgage credit to households is something of the past (such as the short term loans provided by African Bank at its peak, prior to its spectacular implosion).

Current growth in this non-mortgage debt (the type I call "bad" debt) is down to a respectable 4,97%. The flip-side of the coin is our national Debt to Disposable Income Ratio and the importance of having this decline in order to make South African households less vulnerable to sudden changes in interest rates. This debt to disposable income ratio has declined from 88,8% in the first quarter of 2008 to 77,8% as measured in the 2nd quarter of 2015.

If we isolate mortgage debt only and take this as a ratio of disposable income we see that this has declined from 49,2% to 35,7%. Because of the significant amount of mortgage debt and its overall weighting in the total household debt measure, this decline has ensured the overall decline of debt to disposable income measure. According to FNB, the South African mortgage credit's share of total household credit rose from 62,4% in 2001 to 70,2% in 2009, and has since dropped back to 58,8%.

It is however very interesting to note that prior to the 2006/7 run-up in debt, our national debt to disposable income ratio used to hover between 50% and 60%. This could be considered the "ideal range" we as South Africans should aim for but the pain in reducing debt to be able to get even close to those historical levels maybe too much to bear.

Since 2008 the main financial players in the provision of mortgages has changed. Standard Bank has seen its market share rise from 28,6% in the beginning of 2008 to 33,8% in August 2015. Firstrand has also been a "gainer", with their market share growing from 17,9% in February 2008 to 20,2% by August 2015. Absa has lost market share and is currently at 25,8%. Nedbank has also lost ground and currently has a 14,4% share of the residential mortgage market. Specialist private bank Investec has gained ground from a relatively low 2,3% in February 2008 to 5,2% by August 2015.

So what is FNB's considered outlook for the mortgage market going forward? It seems relatively constrained as they look at the Leading Business Cycle Indicator and see that this is currently declining and therefore expect the growth in new mortgage credit to be limited and that the current upward trend will be reversed.

The good news for the Dolphin Coast is that the migration of families into the area continues at a steady pace making Ballito a favoured growth node within the country with no signs that this may change any time soon.

For further information and an interactive analysis of this article follow my blog: andreaswassenaar.blogspot.com.

Andreas Wassenaar

Principal - Seeff Dolphin Coast

Cell: 082 837 9094

andreasw@seeff.com

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