Radical changes by ABSA and FNB in the way in whichfixed interest rates on bonds are implemented have been welcomed by Mike van Alphen, the National Manager of the countrywide bond originators, Rawson Finance.
Previously, said van Alphen, ABSAannounced the rates at which they were prepared to award fixed rate mortgages and then they would assess each client’s rate individually, taking into account such factors as the client’s risk grade and his loan-to-value, i.e. the amount of deposit he was able to raise.
Now, said van Alphen, the previous fixed rate structures have been done away with. ABSA is now offering mortgage bond clients the option of fixing the rate for up to two years at the level at which it was originally negotiated by them(the variable rate).In the latter case, however, the fixed rate applies only for 12 or 24 months and again the risk criteria and the size of the bond will be taken into account when negotiating the new rate at the expiry of the fixed period.
FNB, said van Alphen, have gone one step further. They have now declared their willingness to give bonds to those earning a combined husband and wife salary of less than R13,000 per month, i.e. buyers of ‘affordable’ housing, at a negotiated fixed rate for five years.
The fixed rate offered, said van Alphen, will be the same as the current variable rate that the client would qualify for in his or her personal capacity. Some commentators, he said, have said that the new arrangements’ main benefit is that it will protect customers from the volatility of the market and give them peace of mind. However, he said, he believes there is a definite possibility that interest rates could come down by a further 0,5% and this possibility has to be kept in mind.
“A fixed interest rate is attractive if you believe that interest rate rises are inevitable within the next few months. The banks’ current philosophy, however, appears to be factoring in a further three to five years near-recessionary conditions in which interest rates are unlikely to rise by 1 or 2%. If and when rates do rise significantly, it will, of course, be a huge blessing to have a fixed rate – but I, for one, do not foresee this happening for anothertwo years. The decision as to whether to opt for a fixed rate or not is, therefore, one which should be discussed very seriously with an experienced bond originator who is able to take into account all the client’s personal and financial circumstances.”
