Banks urged to give something back to borrowers

DURBAN (September 15) – South African home loan lenders were urged to become more entrepreneurial and to initiate strong customer loyalty programmes by Jeanne van Jaarsveldt in his opening address at the RE/MAX of Southern African convention on Durban’s North Coast on September 13.

With competition between the lenders for business at its most aggressive ever in the history in the home loan environment and likely to further intensify he believed a strategic shift in the movement was vital. “But it must be a shift that builds genuine loyalty between lender and borrower and it must be based on a long-term commitment by both parties.”

Van Jaarsveldt, marketing and finance director of RE/MAX of Southern Africa, told the gathering that it was important, in his view, that the major lenders recognised the market had become stagnated with similar products and that a fresh approach was needed to elevate it from its present staleness. “Even discounting on interest rates between the lenders has reached near similarity which means there is little incentive for borrowers to stake their future on a certain brand.”

Acknowledging that the country’s pre-democracy days and its status as an emerging economy had posed too great a risk for the major banks to commit to fixed rate home loans for periods of 20 or even 30 years he now felt that such risks had dissipated to such a degree and the general economy was being so well managed by the Reserve Bank that the time had come to offer such packages.

The recent succession of rate increases had muted the benefits of extended periods of fixed interest rate, but such products could return to fashion among the more conservative buyers looking for long-term certitude on repayments as rates softened. “If local lenders are unsure of the popularity of such product they should look at the US industry where 25 year fixed rate loans have become traditional and in fact have become a bastion of that market’s stability.” Extended repayment periods were also now being popularised in other stable economies.

Another initiative of the US and the United Kingdom’s home loan industry that lends itself to adoption by SA home loan lenders was that of loyalty incentives. Banks home loan margins were under intense squeeze because of their short time lifespan as a result of switching incentives, which he expected to further intensify to the point that switching could possibly become a future battleground for business. To nullify its attraction and to enable client retention, Van Jaarsveldt said banks should reward loyalty for certain repayment milestones being reached.

This could be in the form of cash backs or a lower interest rate for a stipulated period or rewards to clients for being in advance of their repayments or even having reached a certain stage in the bond’s life cycle. “Ideally the incentive must be to structured to carry the homeloan forward safely into the period of profit for the lender and then to nurture it’s retention through its life cycle.”

Caption: Standard Bank's John Rivers-Moore (left) with Jeanne van Jaarsveldt at this week's convention.
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