Clive Bredenkamp from proptech specialist e4 explains that homeowners can look for a better interest rate or consolidate their debt with their favourite bank.
We look at the growing trend of bond-switching in the residential property market, especially now, not only with new players in the home loans market, but interest rates remaining at a more than 10-year high.
“Bond-switching has been around for many years. It’s not really a new concept. It has probably been around for the time in which home loans have been granted to customers. What it typically is, is where a customer is with a particular institution and they decide for whatever reason to move that debt to another lender. They could be consolidating their debt with their favourite bank, or they could be simply looking for a better interest rate.
“What it involves is that a bank literally buys out the debt from another lender. That instruction then goes the Deeds Office and an endorsement is lodged in the Deeds Office over the same property. The title deed changes hands and, yes, you’re then bonded with another bank.
While customers are under inflationary pressure – having an interest rate that’s high – it is attractive to shop for a better rate. And this is a practice we see in the UK, where over the lifespan of a bond a home loan can be changed three to four times. “Essentially customers can shop around. And that concept doesn’t really exist in South Africa. There may be a handful of bond switches, but the idea of shopping around for a better rate three to four times – as in the UK – is a relatively new concept.”
“One of the lenders came out recently offering up to a 1% reduction in rate, based on certain conditions. Now there are a lot of details around that 1%. It goes up in increments of 0.125% and 0.2%, so there’s a lot of gamification around how invested you are with the bank.
Getting an improved rate really stacks up in terms of your monthly commitment. And so bond-switching and [its] adoption in South Africa, and the excitement around the opportunities, are really going to force lenders to take a look at the package of a home loan, not just what rate they’re giving over what time, but they’ve actually got to look at the accompanying services – things like how they are packaging insurance, how they are packaging services around moving services, plumbing services, renovation services – all those additional value-adds.
Do you have insight on how easy it is for someone to switch a bond from one bank to another? Surely there are penalty fees, and one would think historically the banks would’ve made it quite difficult to change. So how easy is it to take place?
“Yes … it is getting easier and easier. If you think about your traditional home loan, to register a new home loan takes between 45 and 65 days. That obviously involves transfer of the property from one owner to the other, rates clearance, all sorts of things. “Now, when it comes to bond-switching, you’re essentially just replacing an endorsement from one bank to the other. So it does have to go through the Deeds Office, but the ongoing digitisation of the process is making this easier and easier as time goes by. And it’s exponentially getting quicker to do. “On the banking side, it’s also a lot easier to establish the credit-worthiness of a customer now, with all our information being available through credit houses; and in fact our sister company, SearchWorks, is the largest aggregator of credit data in South Africa.”
