Banks' mortgage rates 'totally unjustifiable'
Bill Rawson and his financial colleague, Mike van Alphen, describe the interest rates charged by some banks as 'totally unjustifiable' and 'out of all proportion'.
In this market, i.e. where most of the homes are priced from R400,000 to R750,000, certain of the banks, said Rawson, are now charging prime plus 6% on mortgage bonds.
"Never before in the history of South Africa have banks worked on such flagrantly exaggerated mark-ups. A 6% over prime interest rate equates to a 70% mark-up," said Rawson.
The banks, he added, are arguing that, as the risk is so much higher at these low income levels, they have to protect themselves adequately. However, since the implementation of the National Credit Act, the risk at all levels, including those in the lowest income groups, has been so substantially reduced that many banks are now in their mortgage bond portfolios, operating on less than 3% bad debt. This, said Rawson, also applies to loans issued since the passing of the National Credit Act.
"Many of these buyers are still coming up with a 10% to 20% deposit," said Rawson, "and this in itself is a fairly strong guarantee that they will strive to maintain their monthly payments."
What concerns him, said Rawson, is that the rates will be seen by the 'disadvantaged' as yet another unfair imposition on those who are already struggling to survive financially, one which goes totally against the government's stated intention of fostering a home owning proletariat and doing so at affordable rates.
"Along with the exorbitant salaries paid to the directors of many parastatal bodies - some of whom have added no discernible value to their organisations - these rates create the perception that the poor are there to be exploited. This, of course, is a perception that can all too easily be stoked and inflamed by power-seeking politicians whose economic policies, if adopted, would prove disastrous to South Africa."
Rawson Property Press Release