Highest growth in home loans since 2010

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.

That's the view of FNB property economist Siphamandla Mkhwanazi, who spoke to Moneyweb on Wednesday, following the release of the latest FNB Residential Property Barometer.

Mkhwanazi notes in the bank's quarterly barometer bulletin that data from the SA Reserve Bank shows residential mortgage advances by the country's banks grew 4.9% year on year in August - the highest growth since 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," he tells Moneyweb.

Much-needed liquidity injection

"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 says that since the beginning of this year, mortgage advances have outpaced average house price growth in South Africa for the first time since June 2011. "Transactions data shows that this has boosted transaction volumes, specifically in the R700 000 to R1.8 million, and R1.8 million to R3.5 million price bands."

He adds that while much-needed economic growth and increased employment levels will continue to 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 by banks is a positive and should see an increase in residential property transaction volumes, which showed mild growth at around 0.9% in August," he says.

Banks vying for market share

"I think the growth in mortgage advances in August - its highest growth level in almost nine years - is due to increased competition between the banks.

 "Banks have actually 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 that they need to lend in order to grow."

Economist Mike Schüssler from Economists.co.za shared similar sentiments with Moneyweb. He says the uptick in mortgage advances is a sign that banks are "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," says Schüssler. "They have realised that it is not a market they should be out of, which may be behind the recent growth in mortgage advances."

 "If you take inflation out of the equation, growth it still modest. Nevertheless, any growth is welcome. If it continues, there may well be growth in residential sales volumes. There are sectors of the market that are still doing well, such as homes around the R1-million range."

Schüssler says the residential property market may have bottomed out, with it being a "buyers' market" now. However, he notes that it is still early days in terms of stronger growth in sales volumes and a market recovery.

While actual sales volumes are growing modestly based on data from the Deeds Office, his research calculations show that home sales volumes derived from transfer duties are down 6.5%.

"I looked at transfer duty figures from the treasury and then 'deflated' it based on the house price index from FNB. This effectively shows that transfer duties from home sales are still down from around 2017. It basically means that the tax man is getting less tax from home sales."

"The number of houses being sold may be up, but the overall value of these sales is still down on previous years," says Schüssler.

Meanwhile in the FNB report, Mkhwanazi notes that, based on data from the Deeds Office, loan-to-price (LTP) ratios for mortgages are also growing.

"This means lenders are also willing to finance a relatively bigger proportion of the purchase price of a house.

"LTP reached 90.6% in the second quarter of this year - its highest level in over a decade or since the peak of the property boom in 2007/2008."

Lower deposits

Pam Golding Property Group CEO Dr Andrew Golding agrees, describing a similar positive trend that has been reported: "According to ooba, mortgage deposits required by banks have eased back to levels last seen prior to the 2008/9 recession, currently standing at 10.8% of the purchase price.

"Notably, ooba also reports that in August the effective approval rating for mortgages was 82.6% - the highest level to date in the ooba data series, which commenced in May 2007. This is encouraging as first-time home buyers account for just over half of all mortgages extended by ooba for the calendar year to date."

Golding says that from a cyclical point of view the property market "is at or near the bottom of a down cycle" and that this is therefore a "good time to buy".

Both Golding and Mkhwanazi are hoping for another interest rate cut this year, which they say will buoy mortgage lending and be a further positive for the residential property market.