First time buyers

Well done! The decision to buy a home has proven to be one of the best made for millions of happy homeowners. It is a fact that property is a good investment, especially when you compare it to paying rent. It is important, however to enter the property market with a good understanding of how a property purchase works, what your costs will be and a respect that this is probably one of the largest financial commitments you will ever make.

Best advice

Your Mortgage Plus consultant will give you the best advice on all aspects of your home purchase, and most importantly on financing it, particularly when the banks differ in their approach to lending. We will help you understand the different interest rates, fees and charges, and terms and conditions available. We will explain to you the features of the different loans and why they are more suited to your individual requirements.

Important Pointers

• Know what you can afford and the costs
• Consolidate your finances
• Significant savings are possible by consolidating all your finances. As home loan rates are significantly lower than those for personal loans, overdrafts and credit cards, but significantly higher than savings and current account rates, it makes sense to consolidate everything into your home loan account.

Minimise your Mortgage
By effectively structuring your finances, you can significantly reduce your total home loan debt. Arranging part of your salary to be credited directly to the loan and making additional repayments on an ad hoc basis (like when you get a bonus) will have very beneficial results. By sticking to a workable monthly budget and avoiding unnecessary debt, you can repay your loan much more quickly and save vast amounts of interest. To find out how much interest you can save and how many years you can take off your loan, contact us today.

Example

You can settle your home loan in 5 years:

• Pay off an extra 1.2% of the original capital debt each month (R 1 200 per R 100 000)
• Adjust for interest rate changes when they occur
• Don’t access funds already paid off

Whilst this may mean some sacrifices, you will save a fortune in interest.

To qualify:

• Deposit of anything from 0 % – 30%
• First time home buyers only
• Have a clean credit record.
• Minimum loan amount of R 100 000
• Single or joint income must be minimum R 6 000 a month
• Your monthly bond repayments cannot exceed 30% of your gross monthly income. Also refer the National Credit Act stipulations.
• Permanent employment

You can take advantage of the option provided by certain banks of a 3-month holiday on home loan repayments.

Please contact us if you require any further information or would like to apply for finance:

Complete this short form online

011.327.4489 / 0861 1111 93

morne@mortgagepluscc.co.za

www.mortgagepluscc.co.za

Banks are no longer chasing market share. Now, after the financial crisis, it’s all about profitability and efficiencies.

This is reflected in the Reserve Bank’s BA900 returns for November 2010, which show a realignment of market share in total advances (a measure of total credit extension).

For the first time in 10 years, the top two of the big four, Standard Bank and Absa, are starting to lose their dominance in the retail market. It is especially pronounced in mortgages, personal loans and instal ments.

Standard Bank, for example, is not growing in personal and instalment loans, with Nedbank taking the lead in personal loans. Absa, once the leader in the mortgages market, has lost significant ground — from 33% a few years ago to 29,4%.

This trend started two years ago, after the financial crisis, when both banks put the brakes on lending criteria, especially on new and loan-to-value mortgages. The trigger: bad debts were shooting through the roof. In early 2010, Standard and Absa started relaxing some of their criteria, but uptake was slow as households were still heavily indebted. However, household debt leverage improved in the second half of 2010 with consumers taking out more mortgage debt but, by then, Nedbank and FirstRand, through First National Bank (FNB), had moved quickly to gain a big lead in that market.

Absa faces fierce competition from all sides in its mortgage business. The BA900 figures show that Absa’s market share in mortgages slipped to 29,4%, while Standard Bank upped its market share for the year marginally, from 26,36% to 26,95%. Standard has grown mortgage advances by 7 percentage points to R296bn, compared with Absa’s more pedestrian 2 percentage points to R310bn.

But Absa CEO Maria Ramos seemed oblivious to customers’ unhappiness over the bank’s reticence to lend. At a post- Davos briefing hosted by Ramos last Friday, a disgruntled Absa customer related how he, a long-term customer of the bank, was unable to obtain a loan for his small business, but a competitor was more accommodating. There are similar stories from other Absa customers, but Ramos denied the bank had curtailed lending, especially to small business. “But if we are not doing things right, we have to look at it again.”

Top management at Nedbank and FirstRand would not comment on the changing dynamics, saying they are in a closed period ahead of their results this month and in March.

Nedbank’s mortgage advances were 3,7 percentage points higher at R228bn, but market share dropped by 0,2 percentage points to 21,4%. FirstRand grew by 5,5 percentage points in the same market to R163bn, but market share improved only marginally, to 15,3% from 15,1%.

Smaller banks such as Capitec and African Bank are also making huge strides with advances and remain a force to be reckoned with. The smaller players present a big challenge to the larger banks in this segment, with African Bank growing loans 53% to R30bn. African Bank’s market share in loans is 5,6% from a previous 3,79%, while Capitec has improved its standing (see table).

Standard Bank is aware of the “increased competition” in the lower end of the market. “And, in some cases, we have deliberately shed business where the pricing is unacceptable or we were not happy with the risk,” says Standard Bank SA head Sim Tshabalala.

This might explain the 3 percentage point drop in its instalment debtors market share, as it divested from motor financing following a huge spike in bad debts.

In the private sector loans market, Absa and Standard Bank have been feeling the heat in both the lower and middle-income market.

Absa lost overall market share of 2,8 percentage points to 18% and Standard Bank by 1,86 percentage points to 19,8%, with Nedbank winning market share by 2,3 percentage points to 20,9%. Nedbank is the biggest player in the lending market, toppling Standard Bank.

But Standard is not overly concerned about the competition and its market share decline. “Market share is an important measure in any scale business such as banking, but it is not decisive,” says Tshabalala. “The ultimate measure of the outcomes of competition is return on equity (ROE). Where product lines are not generating the right levels of ROE given the risks assumed, then it’s reasonable to expect the shedding of market share.”

He attributes the loss to a combination of factors. “We hold large market shares in many asset and liability products, and customer and client segments. It’s natural, therefore, that when competition intensifies, we shed market share.”

Corporate banking is another area where the bank is taking a knock. Tshabalala says this sector has become more competitive because of international banks’ re-entry into SA and increased capital markets activity, where borrowers go directly to asset managers and insurance companies for savings and borrowings, thereby bypassing intermediation by banks.

“What we are seeing in corporate banking is also happening in retail banking,” he says.

But it’s about profitability and efficiency. Tshabalala explains: “If the business is not profitable or does not increase efficiencies, we’re not going to do the business. Beyond a certain size as measured by market share, declines in productivity and scale inefficiencies arise which result in lower profitability. In such cases, declines in market share are acceptable.”

Analysts say the market share changes are not surprising. In some cases banks took a specific decision to reduce lending. Indebted households and customers have also meant demand for credit products has shrunk.

Sanlam Investment Management banking analyst Patrice Rassou says, in the case of Absa, it is quite specific. “They have withdrawn from the commercial property market and are less aggressive in investment banking, especially with project finance. At the same time, FirstRand has more strongly focused on the commercial sector through FNB.”

FNB commercial head Michael Vacy- Lyle says there is a big commercial push from within the bank among smaller companies with a turnover of less than R10m. “Lending is important but we are mindful of the risks,” he says.

Faizal Moola of Avior Research says while Absa and Standard Bank have been adopting a more conservative approach with lending, Nedbank has grown strongly through aggressive pricing, especially mortgages. “A long-term approach is followed with the focus on cross-selling and winning primary clients through home loans,” he says.

It is evident that Absa and Standard Bank are more reluctant to resort to aggressive lending tactics due to losses experienced in the previous credit cycle, which led to mounting bad debts. Standard Bank, for example, is still trying to run down its old mortgage book, which is plagued by bad debt and nonperforming loans of more than R20bn.

Moola expects the conservative strategies of the two bigger banks to eventually change. “They have the capital to lend more aggressively,” he says.

In the short term, banking conditions are likely to remain subdued with muted advances growth in line with a recovery in domestic trading conditions. Impairment charges are expected to improve off the previous high base.

Given low inflation and below-trend economic growth, domestic interest rates should remain low in the short to medium term and continue to put pressure on banks’ interest margins.

Investors should, therefore hold on to their banking shares, say analysts.

Mortgage Plus offers a wide range of advice on different bond options and further advice on the above. Please call us for further information on:

Complete this short form online

Call us on 011.327.4489

Email: morne@mortgagepluscc.co.za

www.mortgagepluscc.co.za