BOTHO MOLOSANKWE
IF YOU are looking into buying a house, brace yourself for higher monthly bond payments, compared to someone who bought their property about a year ago.
That is because few banks are now lending below prime.
Prime is defined as the interest that will be charged on the amount that a person has borrowed and keeps changing according to the repo rate. At the moment, it stands at 9 percent.
In the past, prospective home buyers and bond originators were able to negotiate a rate lower than prime, but now one has to have an exceptional record to get a prime-minus rate.
FNB Home Loans chief executive Jan Kleynhans said they had no choice, as lower than prime was not sustainable and would drive them out of the home loan business in the long run.
For example, an FNB client who took out a home loan of R800 000 today, when the prime rate is 9 percent, and gets a home loan at prime minus a half (8.5 percent), would pay a R6 900 monthly bond.
However, if that person takes the same bond amount at the time that FNB had already ended lending below prime, they will get 0.5 percent on the 9 percent prime and their monthly bond payment would be R7 400.
While these changes will not affect existing customers, Kleynhans said those who increase their existing home loans would be affected. That was because a new contract, called a further loan, would have to be entered into and the new prime-plus rate would come into effect.
The Institute of Estate Agents of South Africa’s Ken Woollcott, who also works for Pam Golding Properties, said the approach banks had taken now meant people had to save, because the days of getting a 100 percent bond were over.
Ursula Nobrega, head of investor relations at Investec, said banks have had to reprice assets (borrowing costs) because the cost of funding had increased. But she said Investec would continue to determine pricing according to a client’s profile.