Mortgage Barometer - Residential Mortgage Market Stress

The latest report from First National Bank (FNB) has revealed that the deterioration in residential mortgage market stress during the recent interest rate hiking cycle has not been severe to date - it is also plausible that we could see improvement in 2017 if interest rates continue to move sideways.

John Loos, household and property strategist at FNB, says that if interest rates don’t rise further in 2017 we will see a year of improving Residential Mortgage Market Stress, and some mild decline in mortgage arrears levels. 

This can be attributed to the likelihood that Household Sector Credit will continue to grow noticeably slower than Nominal Disposable Income, thereby lowering the all-important Household Debt-to-Disposable Income Ratio. This in turn lowers the vulnerability of households to interest rate hikes. 

The report has revealed that the current ongoing declining trend in the Household Debt-to-Disposable income Ratio and a period of sideways movement in interest rates has had a similar impact as a mild interest rate cutting cycle, because the declining Debt-to-Disposable Income Ratio lowers the Debt-Service Ratio.

They are forecasting “more of the same” for the foreseeable future. However, consumers should keep in mind that such forecasts don’t come without risks, especially in the current uncertain times of possible ratings downgrades and resultant dips in investor confidence. Should such dips play out, causing sharp Rand weakening, there is no guarantee that further interest rate hiking can’t take place.

Read the full report: Residential Mortgage Market Stress

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