Rawson Properties clears up interest rate issues

Properties under R1 million do not necessarily attract higher rates. If the buyer can put down a reasonable deposit, this will reduce the rate charged. However, there has been a growing demand for 100% bonds for properties priced under R1 million and these are seen as carrying more risk and, therefore, would be subject to higher rates because the borrower's commitment is low.

By contrast, someone buying a home worth R2.5 million, but able to lay out a deposit of R700 000 could quite possibly get a rate of prime minus 1% - especially if he had most of his accounts with the same bank.

High rates increase risk

A whole range of factors could influence a bank's decision on a loan, such as the client's income source, his employment history, the sector of industry in which he works, the size of his deposit and the site of the property.

"I believe that the banks on the whole are very fair in their assessments, but it has to be said that if they do have big question marks over the borrower these should not justify them in charging a prime plus 5% or 6% rate, which some banks have been charging recently. Such ultra-high rates actually increase the risk of default because they are not really affordable to the buyer especially in an interest rate increase scenario," Van Alphen says.

Devise special products

"I do feel, however, that the banks should have by now devised one or two special products for the affordable market. For example, they could charge either an initial very low rate or interest only repayments for the first two years and then structure the repayments in such a way that over a 20 to 30 year term, the rates are increased in line with inflation year-by-year.

"It might also be worth considering some system in which at the end of the repayment period a residual amount was still left owing. This is, of course, done with cars - where the car can be traded in for a new model - perhaps something similar could be arranged for housing, with the older bond payer now 'trading in' his home for a smaller, less expensive unit," he concludes.