Victoria Mutual Building Society (VMBS) last year reported robust growth in mortgage loan portfolio, but is now projecting that business will be so bad this year that it will erase all of the gains in 2008.

Roy Hutchinson, chairman of the VMBS, attributes the expected fall-off mainly to reduction in effective demand, which in turn, he said, is precipitated by the increase in lending rates by the National Housing Trust (NHT), and the growing cost of credit.

The result, real estate is more expensive to acquire, and the cost of loans to acquire houses have also shot up in the past year.

So, "In 2009 your society is likely to experience a reduction in net mortgage disbursements by as much as 50 per cent, year over year," said Hutchinson at the society's annual general meeting last Thursday.

Hutchinson had just reported that business activity rose 39.6 per cent, pushing the mortgage loan portfolio to $28.2 billion as at December 2008.

In that year, 1,767 new loans were disbursed, compared to 1,552 new loans disbursed in 2007, VMBS's annual report shows.

Already seeing reduction

Richard Powell, president and chief executive officer of VMBS, told Wednesday Business that the society is already seeing the reduction.

"We have already seen in the first half of this year a reduction in effective demand for mortgages," he said.

"There is a growing demand for housing solutions but the afford-ability of households have been affected by higher interest rates, loss of household incomes because of all of the restructuring and downsizing and job losses that are taking place in the economy, inflation has been a problem over the last couple of years," he further explained.

"We also had a combination of increased prices in terms of new construction, higher cost of financing, stress on household incomes which have served to depress demand. Indeed, also the increase in NHT rates would have been a contributing factor," said Powell.

State-owned NHT - which partners with private mortgage lenders to bring down the cost of funds to borrowers - has a commanding presence in the market, and its policies tend to drive real estate activity.

But its last adjustment of rates was back in June 2008.

That VMBS is only feeling the effects a year later, and that is not unusual, according to Powell, who says NHT's actions tend to take some time to be felt throughoutthe market.

Lagging

"Disbursements lag approvals because when people are going to buy in a housing scheme, they (the institutions) may approve them for the loan but disbursement does not take place for six months or more," he said.

"So when you get a slowdown in approvals, you don't see the slow-down in approvals until sometime later. So that is why we made the point in our report that although the disbursements this year will be down by comparison to last year, it is from last year we have been seeing reduction in the approvals. So you might think of the approval as a leading indicator to the disbursements."

Powell did not quantify the level of declines seen by VMBS so far this year.

The society, the second largest in a market of four private players, grew revenues by 15 per cent last year, and grew profits 14 per cent to $743.8 million.

Creditable performance

Hutchinson said some of the society's subsidiaries performed creditably.

There was some residual impact of the global credit crunch on Victoria Mutual Wealth Manage-ment Limited, Hutchinson said, without elaborating. But the division grew after-tax profit by 22 per cent, to $59.35 million.

Victoria Mutual Insurance Company Limited also reported after-tax profits of $108.98 million, which reflects a 93.8 per cent jump over 2007, the building society announced.

The property division and money transfer operations underperformed, however, while the financial performance of VM Money Transfer Services Limited was negatively affected by the appreciation of the pound sterling, Hutchinson said in his statement.

dionne.rose@gleanerjm.com