Banks ease up on home loans

GOOD NEWS: YEAR-ON-YEAR RISE OF 4.9% IN AUGUST

Lenders are also more willing to finance a bigger proportion of the purchase price.

Lenders also now willing to finance a bigger proportion of the purchase price.

South African banks are upping their lending to home buyers and, if the growth in mortgage advances continues, it will contribute to an uptick in the residential property market.

This is the view of FNB property economist Siphamandla Mkhwanazi, who was speaking following the release of the latest FNB Residential Property Barometer.

Mkhwanazi noted that in the bank’s quarterly barometer bulletin, data from the South African Reserve Bank showed residential mortgage advances by the country’s banks grew 4.9% year on year in August.

This was the highest level of growth since as far back as November 2010.

“The progressively faster pace of growth in mortgage advances this year could be a positive outlier for future growth and see an uptick in the residential property market,” Mkhwanazi added. “While the property market has underperformed in recent years, the growth in mortgage advances this year has provided some support, injecting much-needed liquidity into the market.”

Mkhwanazi said that since the beginning of this year, mortgage advances had outpaced average house price growth for the first time since June 2011.

He added that while much-needed economic growth and increased employment levels would still be the main factors contributing to a long-term turnaround in the property market, lower interest rates and “constructive lending” should provide some support to the market in the short- to medium term. “The growth in mortgage advances in August … is due to increased competition between the banks. It’s not a case of the pool of customers getting bigger; it’s a case of banks looking to grow market share,” said Mkhwanazi.

“Banks have been too cautious to lend in recent years, which saw mortgage advances in the residential property sector hit record lows. It seems things are starting to normalise now, as banks realise they need to lend to grow.”

Economist Mike Schüssler from Economists.co.za shared similar sentiments. He said the uptick in mortgage advances was a sign banks were “getting back into” the residential property market.

“While property prices have gone nowhere in recent years, banks have also been at fault as they got out of the residential property market, reducing lending to historic lows,” said Schüssler.

“They have realised it is not a market they should be out of, which may be behind recent growth in mortgage advances.”

But he cautioned that the “inflationary effect” in the growth of mortgage advances had to be considered.

“If you take inflation out of the equation, growth is still modest. Nevertheless, any growth is welcome.

“If it continues, there may be growth in residential sales volumes. Sectors of the market are still doing well, such as homes in the R1 million range.”

Meanwhile, in the FNB report, Mkhwanazi noted that based on data from the Deeds Office, loanto-price ratios for mortgages were also growing. “This means lenders are also willing to finance a relatively bigger proportion of the purchase price of a house.”

Pam Golding Property Group CEO Dr Andrew Golding said the property market “is at or near the bottom of a down cycle” and this is a “good time to buy”.