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Credit Act Could Increase Bond Fees
In terms of the existing fee structure imposed by South Africa's old Usury Act, the initiation fee on new home loans of up to R500 000 was a flat rate of R175 (excluding VAT). In terms of the NCA, banks may now charge up to R5 000 for the same service.
The standard admin fee of R5 per month has been raised to a maximum of R50 per month while the interest rate limitation has been increased from 17% to a maximum of 28%. Banks are no longer allowed to charge the standard property valuation fee of R850 but they could of course more than recoup that loss by raising initiation and administration fees.
While the Usury Act only applied to mortgages of up to R500 000, the NCA will regulate fees charged on all mortgage agreements, irrespective of whether it's a R300 000 or a R3m loan.
Herschel Jawitz, CEO of Jawitz property group, says that banks will undoubtedly pass additional administrative costs incurred by NCA compliancy on to consumers through higher fees. He says it's unlikely that banks will disclose new fees on mortgage agreements before the NCA is implemented, as they wouldn't want to give away any competitive advantages.
First National Bank Home Loans CEO Ed Grondel concedes that homebuyers face noticeably higher bank charges on mortgage agreements from the first of June. He says the Usury Act's old fee structure didn't allow for inflationary increases. So admin costs have run way ahead of that charged by banks. But Grondel says the mortgage market is highly competitive, which could see some banks opting to keep fees low to help grow market share.
However, it has to be said that consumers will know exactly what they're paying for and how banks levied various admin charges, as mortgage lenders will in future have to disclose detailed information of all fees charged upfront - before the agreement is signed. That gives clients the opportunity to compare the cost structures and interest rates offered by various banks before they sign any agreement.
From the first of June banks will also have to give a detailed cost breakdown showing the total interest and capital repayments over the 20-year life of each new mortgage. |
Posted on Friday, May 25, 2007 (Archive on Thursday, May 31, 2007)
Posted by hayleym Contributed by hayleym
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