Feeding frenzy

As various parties fight for a share of the lucrative home loans business, you, the consumer, face problems such as high - and growing - commissions, lack of disclosure and commission-driven selling. A number of points are worth highlighting.

Commission levels
When homebuyers source their loans through a mortgage originator, the bank that grants the loan pays the originator an average commission of two percent of the value of the loan. Reports of three percent were dismissed by chief executives of the major originators as "utter rubbish" and "sensationalistic". The issue of paying referral fees to estate agents is not seen as a problem as it is not unlawful to do so, and banks had been doing so long before mortgage originators entered the market.

Lack of disclosure
None of the big three originators - Betterbond, Bond Choice or Mortgage SA - currently disclose their commissions to their clients. This issue will be addressed.

Commission-driven selling?
All three originators denied simply placing home loans with the banks which pay them the highest commission. Commissions might vary according to work done, borrowers might only want certain banks to deal with their bond applications or, as in the case of Betterbond consultants, receive the same commission from each of the banks.

Of course, there is nothing stopping consumers from going directly to a bank if they feel they can get a better interest rate. It is worth noting that, before originators started operating in South Africa, the average interest rate on a home loan was about prime. Today it is prime less a discount of 1.3 percent. The bond origination industry is therefore not all bad especially as it has led to faster turn-around times when approving loan applications.

As a final note, estate agents may not include clauses in sale agreements - especially if the clauses are preprinted in the standard sale agreement - that give them the right to help the buyer obtain a mortgage bond. If they do they will contravene the provisions of the Code of Conduct for Estate Agents, Clive Ashpol, the compliance officer at the Estate Agency Affairs Board, says.

Article on Personal Finance