That’s the word from Rudi Botha, CEO of leading mortgage originator Betterbond, who says: “The home loan business the banks are writing now is probably the best they have written in the past 10 years, and we expect it to prove very profitable within the next two to three years.
“For a start, they are already evaluating or ‘credit scoring’ potential borrowers now on the basis of a one or two percentage point expected increase in interest rates next year. And while this may disappoint many, it should ensure that those who do obtain home loans now have the financial resilience to cope with the predicted rate hikes, without defaulting and running the risk of losing their homes.”
In addition, he says, home loan rates are currently not being discounted nearly as much as during the past few years, when borrowers in good standing could quite often secure a rate that was one or even two percentage points below the prime rate.
“What is more, there is a further shield for both banks and borrowers in the fact that there are really very few 100% loans being granted at the moment. Combined with the strict lending provisions contained in the National Credit Act, the requirement now for most homebuyers to pay a deposit of at least 10% - and usually more – offers protection against the effects of negative equity for both individual borrowers and the real estate market in general.
“Consumers who pay bigger deposits also benefit in the sense that banks will grant them loans at more favourable interest rates, which saves them money.”
And finally, Botha says, profitability should be improved by the fact that the banks have streamlined the acquisition of new home loan business as far as their fixed costs go.
“Overall, we see that the lenders have stopped playing so hard for market share and started to really concentrate on the quality of their home loan business. And as this shapes up, it should serve to make them much less nervous about the home loan market, and about granting new loans – although we anticipate that these will very much continue to be granted according to the ‘new rules’ and not in the freewheeling way of the past. Borrowers will be taken seriously, as valuable customers, and that’s good news.”