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Penalty rates on 100% bonds hit property owners
HOME LOANS
THE property market was dealt another blow this week as some banks slapped penalty interest rates on 100% mortgage bonds. In compliance with new Reserve Bank regulations aimed at forcing banks to lower their risk when granting loans, banks started applying the 80% rule to new home loans granted from Thursday. The new regulations, in line with international practice, compel banks to increase their capital adequacy ratio from 4% to 8% on mortgages greater than 80% of the property's value. The ruling applies to all new home loans. Existing loans will be affected as from October 2005. Richard Gahagan, general manager of mortgage loans at Absa, says the ruling increases the financing costs to banks.
Absa's current home loan rate of 23.5% will apply to the first 80% of new home loans, while a penalty rate not exceeding 0.4% will apply to the remaining 20% if a 100% loan is granted. A total interest rate of 23.9% could therefore be charged on a new 100% Absa loan. Standard Bank is still finalising its approach, but is expected to charge extra for new 100% loans from November 1. First National Bank and Nedbank will not change their pricing for new 100% home loans at this stage. Mercantile will charge a 1% penalty fee for new 100% loans on a sliding scale. This means if you are granted a 85% loan, you'll pay an extra 0.25% on top of your rate, while the 1% applies if you are granted a 100% loan. NBS will add 0.25% to the home loan rate for new loans exceeding 80%. Once you have repaid the first 20% of your home loan, the penalty rate will be dropped. Home owners with existing 100% mortgage loans have five years in which to either repay 20% of their property's assessed value or face similar penalty rates. Unless, of course, your property increases in value by 20% by then.
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