In the United Kingdom the average person remortgages their home every two years. In fact, 50% of all new mortgage advances are switches with people moving from one mortgage lender to another in search of a better lending rate.
This is because in the UK mortgages are viewed as a commodity rather than something attached to your bank account, says Ian Wason, MD of Bond Busters, the first mortgage brokerage in South Africa.
Unlike mortgage originators who only deal with new mortgage applications, Bond Busters assists existing homeowners to negotiate a better lending rate by shopping around.
Wason says in the UK there is no correlation between your bank and your mortgage lender; people move according to where they can get the best rate. “We find that in South Africa people tend to think they have to move their whole bank when they move their mortgage rather than seeing it as a separate product,” he says.
As a result of the commoditisation of the mortgage industry in the UK, there are more than 200 mortgage lenders who provide about 3 000 different types of mortgage products, compared with 11 mortgage lenders in South Africa who are controlled by six financial institutions.
“This aggressive competition in the UK has led to far better pricing and innovation with regards to products,” says Wason. For example, in the UK you can choose a mortgage bond where you pay only the interest on the bond for the first three years.
Wason says the local market is starting to mature and there is increasing competition, which is why it is imperative that homeowners shop around for better rates every few years. Ten years ago the prime lending rate was the best rate a bank would give, now banks will offer mortgage finance up to 2,2% below prime.
Bond Busters has identified three criteria that banks use to determine their lending rate. The first is on the size of the loan. If you are looking for a mortgage of R1,4-million or more you could qualify for the best rate.
Banks also look at the loan as a percentage of the value of your house. With property prices rising rapidly you could find that your bond, relative to the value of your property has fallen. If your loan is 60% of the value of the property or less you could negotiate for the bank’s top lending rate.
And finally, banks look at your repayments as a percentage of your income. If your bond repayment is 24% or less of your monthly income, you could again qualify for the best rate. With interest rates having come down sharply it is likely your bond payments relative to your salary have dropped and you could negotiate a better rate.
When re-registering your bond there are bond registration fees that you need to take into account. Bond Busters has negotiated with its lawyers to discount these fees by 40%. Fees are determined on a sliding scale, for example through Bond Busters a R1,5-million bond will cost you R3 300. However, there are cases where the bank will offer to cover these costs in order to get your business.
“For example, Nedbank will absorb registration fees as long as you keep your bond with them for more than four years,” says Wason.
Bond Busters is paid a fee by the banks for giving them the business but this does not affect the customer’s rate.