THE recent shake-up in the local banking sector particularly the disappearance of small players might hurt consumers in the residential property market, says SA Home Loans CEO Simon Stockley.
The issue is really one of competition, he says, pointing to the collapse of Saambou Bank, uncertainty about the future of BoE and the sale of NBS to Nedcor.
The only specialists in mortgage finance are four major commercial banks 'and ourselves', says Stockley.
SA Home Loans offers housing finance at rates with an average discount of 2% to prime. It raises its capital by securitising its mortgage loan portfolio.
With market share of just more than 1% it has a loan portfolio of R2,5bn. Though it offers consumers better lending rates than the banks, it is too small to move the mortgage finance market.
'My concern is that a lack of aggressive competition may result in a hardening of bank attitudes and tightening of pricing for consumers,' says Stockley.
In recent years many consumers have enjoyed discounts to the lending rates quoted by financial institutions.
The establishment of niche players like Saambou and BoE, which chased market share aggressively, increased the level of competition within the market, and the major players responded by slashing margins, he says.
However, banks no longer facing this competition may consolidate their positions and enter tacit agreements not to compete on the basis of interest rates. The consolidation could also affect mortgage originators, who serve as intermediaries between customers and banks, sourcing business for the banks on a commission basis.
'The current level of commission paid to mortgage originators is unsustainable, and a shake-up within this sector of the market is likely,' says Stockley.
While mortgage brokers play an important role in the property industry, there is a need for them to disclose their commission and their interest in transactions, and to be more realistic, he says.
Stockley says the property market has shown great resilience. There has also been no discernible slowdown, despite the two percentage point increase in interest rates this year.
Another 1% increase in the prime lending rate is 'inevitable' but after that the outlook for rates is more positive.
Absa home loan division head Richard Gahagan dismisses suggestions that the consolidation will hurt consumers. He says the housing finance market has always been dominated by the four banks and the shake-up should not shift their positions significantly. Business Day
Publisher: Business Day
Source: Business Day