Thursday, 7 July 2011

Forget about -2% below prime.

No more -2% You!
Well we have been telling our clients for months now.  Our rate cycle is at its lowest in 30 years (remember 24%)  eeeish.  The war on rates is a thing of the past and the average rates clients are getting in the past 10 months is more like prime less 0.3% or 8.7%.  Vacant land you pay a premium and in part of ensuring deals still happen the mortgage brokers are trying to "convince" banks not to lose clients to rates.  Well no-one cares about that anymore.

Standard Bank rates for non- Standard clients is definitely higher - thats the way it is.

First National Bank is seriously evaluating whether lending at prime is still a viable option for Home Loans and may soon add a percent to the cost of its borrowing rate for most new customers seeking new home loans and to existing customers wishing to take on further loans.


The rethinking comes as the cost of funding and the rate at which the bank borrows is becoming more expensive for the long term.

“We have to reevaluate the rate at which we are offering home loans, partly because of the cost of raising money from the market ... we should on average be at prime plus or prime plus 1.5% or 2% ... It is imminent and we have to make the change,” CEO of FNB Home Loans Jan Kleynhans told Moneyweb.
“We believe home loans are still under priced and we believe it’s going to change. We don’t think it’s sustainable at the current levels.”

Asked if FNB was not worried that it would lose customers due to the adjustments in the lending rate for home loans, Kleynhans said:

“There is that risk but if input costs are too high then we have to make do with those tough decisions and face reality. We have made significant price changes before and the market followed and made the adjustments. We think it will happen again."

When I hear this I truly understand the frustrations that will happen between clients and banks and mortgage originators friends and families - the fall out will be great.

Gone are the days when the mortgage originators pay commissions for deals, they are working far to hard to get the deals for agents and it will not be long before the banks will fall back to a select few as lead generators and drop the commission agreements they have with real estate agencies. 
We know that the other banks or some of them have  already repriced at prime-plus.

Kleynhans added that everybody knows about Basel III. In most market segments, consumers need credit first and then looking at the rate offered by the bank. The demand for credit is a bigger issue than what the cost of credit is, from a consumer perspective, and that’s why we think it’s time to make this next adjustment.”

The cost of doing deals are lying squarely on the banks backs and many mortgage originators are doing the same by carrying the upfront costs themselves, providing quality and very clear applications giving the banks the advantage of making a simple aye/nay decision.  This does not mean an increase in commissions at all for the MO's, purely a simpler more cost effective approach.
Kleynhans said, despite the evaluation of prime lending, FNB offered the customer a value added service when buying a house and was not just a pure credit provider for home loans. He said the bank offered would-be buyers in-depth information about the market value of a new home and the prospects of capital growth in that particular suburb.

The bank also has an arrangement where distressed property owners sell their properties to avoid legal obligations. If there is a shortfall between the selling price and the loan amount, FNB recovers difference at zero percent rate for ten years, according to Kleynhans.

Nedbank too, have an awesome reseller service of distressed and PIP properties with a wonderful hands on approach.
The head of FNB Home loans also noted that the bank was not expecting much growth in the mortgage market as household budgets remain under pressure from expenses such as transport, electricity, municipal rates and education costs. Kleynhans said currently FNB declined 50% of home loan applications due to poor credit records and unrealistic expectations by consumers looking for more credit than whats available to them.

FNB, ABSA still entertain 50% loans from non-residential clients at fair interest rates for now but the key is doing a 50% money transfer of deposits and the send money to South Africa as per Reserve bank requirements.
He added that unlike five years ago when the majority of its home loan applicants got 100% funding, this was no more the case. Kleynhans said about 20% of new mortgage applicants were given 100% funding and those were people with “squeaky clean” credit profiles and good income statements.

The customer’s ability to pay and the suburb where the house was situated also contributed to how funding should be structured.

In terms of market conditions this year, Kleynhans said defaults were extremely low and people who were still struggling with arrears were those who got their loans in 2007-2008.

“We are not seeing new arrears from new loans that have come through last year. I think we are lending appropriately from a point of view of affordability ... We always worry about the level of expenses and the cost of living consumers are bearing.

Despite the call to customers to fix their rates, Kleynhans said FNB was fixing a few home loans as some people did not fully understand the value of fixing now

Its time to be  smart in our financing.!!!

1 comment:

Boerworscurtain said...

Very informative, very helpfull and very Hartseer . . . :(