Why banks might be causing flat mortgage growth

An analyst calls the banks' moves counterintuitive.

A research note by Jefferies said the changes to the property measures should be positive for lending volumes if transaction volumes go up. However, banks might be going the other direction.

"What we find counterintuitive is that, despite transactions already increasing by more than 20% year-on-year in both 2015 and 2016, the three local banks have started offering no-spread teaser mortgage rates for new developments,” said the report.

According to Jefferies, the mortgage growth is flat at ~4% despite the increased transactions, which suggest mortgage credit is moving from one individual to another and net new credit creation is limited. It believes this does not bode well for margins.

Here's more from Jefferies:

The recent announcement also eased rules related to home equity loans, taking such loans out of the purview of TDSR framework. The intention is to help cash-strapped individuals/households and, in our view, also help small businesses.

Previously announced “lease-buy back schemes” had similar intentions. Relaxation of business restrictions and liberalisation of shareholding policy for finance companies in Singapore announced in February is also intended to enhance financing to SMEs.

What remains to be seen is if banks are willing to take second lien on mortgages. We believe banks will choose to focus on income rather than asset values, which intuitively should imply that asset values are not rising. Business loans to individuals have been shrinking since October 2015.