The chances are high that a price war involving South Africa’s major banks could come about within the next year – and this could make mortgage bond rates and the general conditions under which banks operate more competitive, says Bill Rawson, Chairman of the Rawson Property Group.
“At the moment,” said Rawson, “the banks benefit significantly from charging different interest rates on different accounts. Personal loans, for example, for the purchase of a car, a holiday home or home improvements, are made at very high rates. Similarly, any amounts overdue on credit cards are also charged very high. By way of contrast, mortgage bonds might be granted at low rates of either 8,5% (the prime rate) or 9 to 10%. Likewise the banks pay varying interest rates on all cash deposited with them. Fixed deposits, for example, qualify for higher rates than current/cheque accounts.”
Certain commentators, said Rawson, have suggested that all the different accounts be consolidated into one. Under this arrangement, each month, the investor’s full salary and other income received could be used temporarily to reduce the interest and the repayment period on the client’s bond, before being syphoned off to pay other debts. Car and holiday finance would then be available at the same low finance rates as homes.
“The current arrangements,” said Rawson, “work very much in the banks’ favour - but it should be noted that there are already some banks operating on the proposed system and the advantages are so great that this type of account is likely to become widely used in the future. This will, in turn, stimulate home buying and home prices.”
Possibly the main factor working against an adoption of the revised system, said Rawson, is that it could need more hands-on personal consultation with the client, who with his bank advisor would then structure a one-off personal package with the bank. However, many bank employees, accustomed to working on credit score cards and fixed rules, might be incapable of helping to design such a flexible package on the client’s behalf.
