IS THERE ANY LIFE IN MORTGAGE MARKETS IN SOUTH AFRICA? September 2018
2 AGENDA 1. Mortgage access 2. Borrowers 3. Properties 4. Lenders 5. Governance 6. Next steps
SARB data provides a long term perspective on mortgage activity – denominated in Rands NEW MORTGAGES: South Africa Reserve Bank (Million Rands) 500 000 60% 43% 40% 37% 400 000 32% 27% 26% 24% 24% 23% 21% 20% 20% 18% 18% 16% 16% 13% 300 000 11% 8% 7% 7% 6% Million Rands 0% -3% -8% 200 000 -20% 100 000 -40% -50% -57% 0 -60% 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Mortgage loans paid out during the period - R millions (LHS) Year on year growth rate (RHS) Average inflation Source: SARB
It is helpful to explore the number of mortgages granted as this links back to households. Deeds data and NCR data align relatively well MORTGAGE LOANS GRANTED – TOTAL: 2007 – 2017 (Number of loans) 600 000 All lenders , mortgages 400 000 NCR 282 636 granted to 164 917 162 050 163 605 164 432 159 184 156 249 153 702 153 477 140 039 200 000 consumers 0 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 600 000 DISCLOSURE* Data anomaly OFFICE OF Banks , 374 184 mortgages 400 000 274 292 granted to 176 089 consumers 130 398 200 000 113 097 195405 0 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 600 000 LIGHTSTONE All lenders , 429 887 mortgages on 400 000 residential 260 060 247 620 properties 149 269 150 350 150 379 150 538 144 049 144 192 160 033 200 000 125 857 123 344 126 708 129 447 116 538 117 097 119 250 113 490 106 274 86 288 0 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 * Approved taken up Mortgage Mortgage linked to a sale
BASA data on FSC lending is available to end 2016. It shows a clear decline between 2014 and 2016 FSC MORTGAGE ORIGINATION: 2004 –2016 RAND VALUE 12 000 10 343 10 074 9 000 7 758 7 579 7 325 7 328 7 262 R Millions 6 319 6 045 6 042 5 775 6 000 4 329 2 946 3 000 0 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 NUMBER OF LOANS 80 000 Number of loans 57 324 55 287 53 159 60 000 43 721 40 000 30 909 29 981 29 060 27 708 26 911 25 147 24 643 24 897 21 464 20 000 0 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Source: BASA
This is despite the adjustment of income thresholds and an accommodating interest rate environment DOMINANT RATE ON NEW MORTGAGES & MAXIMUM MORTGAGE VALUE (2004 – December 2017) FSC: 2004 - 2008 AFFORDABLE MARKET: 2009 – DECEMBER 2017) 20% R 600 0.00 18% R491 702 R468 854 R457 690 R 500 0.00 16% R440 714 R443 171 14% Mortgage value R 400 0.00 Interest rate 12% R323 112 10% R 300 0.00 8% R 200 0.00 R160 637 6% 4% R 100 0.00 2% 0% R 0.00 2004/01 2005/01 2006/01 2007/01 2008/01 2009/01 2010/01 2011/01 2012/01 2013/01 2014/01 2015/01 2016/01 2017/01 Upper income R22 000 R7 500 R7 900 R8 200 R9 080 R9 670 R15 142 R15 498 R15 738 R16 500 R17 600 R18 600 R20 000 R20 800 threshold RATE ON FSC MORTGAGE LOANS MAXIMUM FSC MORTGAGE VALUE Source: SARB, BASA, own calculations. Maximum mortgage value assumes 25% instalment to income rate. Rate on FSC mortgages assumed to be prime plus 200 basis points
There is no single definition of the ‘affordable’ or entry-level market, which makes comparisons and consolidation difficult MORTGAGE LOANS GRANTED – AFFORDABLE MARKET 57 324 (Number of loans) 55 287 53 159 60 000 43 721 30 909 40 000 29 981 29 060 27 708 26 911 25 147 24 897 BASA 24 643 21 464 20 000 0 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 (Borrower income 60 000 under R1 5 000) 29 788 40 000 28 930 27 522 27 254 NCR 22 807 18 392 14 739 12 136 20 000 8 895 6 874 0 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 DISCLOSURE (Borrower income \ under R15 000) OFFICE OF 60 000 40 000 25 426 20 000 0 (Mortgages with a sale) 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 CITYMARK 60 000 40 000 R300K - R600K Under R300K 20 000 24 145 17 753 11 528 11 302 8 374 8 629 11 511 11 358 11 510 8 943 7 598 6 143 6 094 0 1 994 1 887 1 618 1 039 722 762 234 228 342 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
The primary instrument to support mortgage lending is the FLISP FLISPS AND MORTGAGE LOANS GRANTED TO FLISP ELIGIBLE HOUSEHOLDS 60 000 49 029 50 000 40 000 30 643 30 000 18 680 20 000 17 231 14 739 12 136 8 895 10 000 6 824 2 660 2 253 1 193 - 2014 2015 2016 2017 2018 2019 2020 Number of FLISPs Mortgages granted to FLISP eligible borrowers (<R15 000) Number of FLISPs: Forecast Linear (Mortgages granted to FLISP eligible borrowers (<R15 000)) Source: SANT Human Settlements budget vote 2018
9 1. Mortgage access 2. Borrowers 3. Properties 4. Lenders 5. Governance 6. Next steps
Bureau data for borrowers earning between R10 000 and R15 000 indicates high levels of credit market activity and relatively high levels of arrears OPEN CREDIT ACCOUNTS (Borrowers with a personal income of R10,000 – R15,000) % Of borrowers with this account type in arrears of 90 days+ 25% 34% 17% 16% 5% 3% 29% 3% 60% % of borrowers in segments with this account type 53% 50% 34% of borrowers in this 48% income segment have at least one account in arrears 40% of three months or more 20% 16% 13% 13% 5% 1% 0% Retail apparel Unsecured Credit card Retail General Vehicle finance Mortgage Retail furniture Financial other Arrears 90+ days Good Source: XDS data, own calculations
While access to credit offers consumers a pathway to asset building in theory, it can create barriers in practice REASONS FOR DECLINE: ALL HOME LOANS 2015 Unacceptable credit track record 31% 29% 55% 17% 40% 36% 42% Lack of affordability Insufficient info/ docs provided 0% 2% 3% Unacceptable security 81% 6% 3% 2% Ineligible applicant 2% 1% 7% 2% 8% Unacceptable exposure (town) Adverse credit record 1% 10% 22% Other/ blank data Not target market Source: Office of Disclosure, 2017
While access to credit offers consumers a pathway to asset building in theory, it can create barriers in practice REASONS FOR DECLINE: ALL HOME LOANS 2017 Ineligible Applicant 1,52% Insufficient Information / Documents Having Been Provided 3,32% Adverse Credit Record / Unacceptable loan to value ratio 8,59% Unacceptable Security 14,32% Unacceptable Credit Track Record 24,79% Lack of affordability 38,73% Other 50,69% 0% 20% 40% 60% Source: Office of Disclosure, 2018
Patterns of credit origination in the R10 000 – R15 000 segment reflect borrower priorities and constrained choices CREDIT ORIGINATION FOR INDIVIDUALS EARNING BETWEEN R10 000 AND R15 000 MONTHLY (2017) TOTAL MONTHY VALUE NUMBER AVERAGE SIZE INSTL. R23 m MORTGAGES R387 102 5 338 R2.1 bn R3,920 SECURED R270 m R11.6 bn CREDIT 124 812 R93 011 R2,115 UNSECURED R821 m R15.4 bn 564 160 CREDIT R27 300 R1,405 CREDIT R555 m FACILITIES 979 842 R5 970 R5.8 bn R476 Source: NCR Consumer credit report. Mortgage 12.5%, 240 months, vehicle 14%, 60 months, unsecured 25%, 24 months, facility 25%, 12 months
There is a noticeable difference in performance of loans written since 2009. As at December 2012 ,7.7% of Affordable Market loans were 30 days or more outstanding versus 4.1% of Conventional Market loans AGEING ANALYSIS OVER TIME (CUMULATIVE) (Mortgages originated between 2009 and 2015, mortgages from big 4 banks) AFFORDABLE MARKET LOANS CONVENTIONAL MARKET LOANS Total*: 106 141 loans Total*: 545 267 loans 9% 9% 8% 7,7% At Dec 2015, 1.7% of Conventional 8% 7,6% 7,3% Market loans were 90 days+, 0.7% 60 – 6,9% 7% 7% 90 days and 1.8% were 30 – 60 days 6,6% 6,4% 6,1% 2,9% % of loans 30+ days 6% 6% 5% 5% 90+ days 4,1% 4,0% 3,9% 3,9% 1,2% 3,7% 4% 3,6% 4% 3,6% 1,7% 60 – 90 days 3% 3% 90+ days 0,7% 2% 2% 3,7% 60 – 90 days 30 – 60 days 1% 1,8% 1% 30 – 60 days 0% 0% 201106 201109 201112 201203 201206 201209 201212 201303 201306 201309 201312 201403 201406 201409 201412 201503 201506 201509 201512 201106 201109 201112 201203 201206 201209 201212 201303 201306 201309 201312 201403 201406 201409 201412 201503 201506 201509 201512 30 – 60 days 60 – 90 days 90+ days Note: total loans open as at December 2015
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