Advised to Seek Best Deal on Home Loan

Shop Around for Home Loans

An article published by I-Net Bridge has drawn attention to the “perfect storm” created in the housing market by a combination of interest rate hikes and tightening financial liquidity. Simon Stockley, CEO of home loan provider Integer, says that consumers already under pressure are becoming the major casualty.

Stockley explained that in the current economic climate it is becoming far more expensive to raise capital in response to the ‘global credit crunch’ and consequently, local banks are now having to pay more to attract more liquidity.

According to Stockley, “Now they want to pass the increased cost of sourcing cash to hard pressed South African customers”. These factors make the Governor of the Reserve Bank, Tito Mboweni’s recent announcement regarding increases to the repo rate “difficult to understand”.

This is at a time when central banks in other countries, like the UK and the US, are taking proactive steps towards supporting and stimulating the property sector. South Africa’s regulator seems far too “preoccupied with inflation targeting at the expense of growth in the economy,” says Stockley.

Where banks were offering discounts to prime in the past, they are not going to be as aggressive about offering prime –2% in the current environment. “Increasingly, we are seeing smaller and smaller discounts with the new maximum discount to clients, outside of the privately banked sector, at around prime –1.5%,” Stockley says.

While some might expect these developments to be the last of the consumers’ woes, ABSA and FNB have recently implemented changes to their credit policy, requiring borrowers to now have a deposit of at least 5% of the value of the property in order to secure a loan. This makes it even more difficult for new entrants to the market, who do not have such a deposit to gain a ‘foothold on the property ladder’.

Stockley’s advice seems to be that now, more than ever, consumers need to ‘shop around’ to get the best deal and should not accept the first offer that banks put on the table. It is vital that consumers negotiate terms with lenders before committing to a home loan or re-finance option.

“Shopping around does work and consumers should always seek professional advice when applying for a home loan. Because there is no real competition in the banking sector, banks have been able to exploit their dominance of the home loan market and offer customers the worst interest rate when they first apply for a home loan,” urges Stockley.

He adds that, “It’s only when you question and come back with a rival offer that the banks generally match or reduce their rate. So, shop around for the best rate and never accept the first rate a bank puts on the table”. It is no longer a matter of the best interest rate on your home loan, but the better deal that provides control over monthly repayments and ensures that you are bond-free years sooner.

The information in this article is courtesy of I-Net Bridge (“Near perfect storm in housing”, 11 June 2008).

If you would like to buy or sell property in South Africa, please visit www.sahometraders.co.za.