Editor’s update 16/10/2014: FNB will now process home loans for self-employed applicants BUT only if they bank with FNB. Self-employed applicants that do not bank with FNB will still have to approach the bank directly.
I have recently been informed that, among other things, FNB will no longer accept home loan applications from self-employed clients that are submitted through Mortgage Originators. I feel that this is an abuse of their relationship with their clients and their place in the market as it attempts to negate the self-employed person’s freedom of choice. And by doing this they will further undermine fair competition within the South African banking system.
It is my opinion that this is a ploy to pressure clients to use only FNB’s services rather than, say, offer great service at a reduced rate. And the impact goes beyond the self-employed client: even if you are the primary applicant (main income earner) if your partner is self-employed you will not be able to use the services of a mortgage originator to submit your home loan application to FNB.
Don’t care because you’re not Self-Employed? You should…
This move to eliminate the mortgage originator from self-employed applications could be the first step towards completely doing away with mortgage originators dealing with FNB.
Sometimes this kind of downsizing might be a great idea but this is not one of those times. Dealing directly with the banks is like removing your own appendix: you could probably do it yourself but you’d avoid a lot of pain and increase the likelihood of success if you used a surgeon.
The experienced and professional Mortgage Originator, like a surgeon, is an expert in their field and offers invaluable service to all purchasers of property who require mortgage finance. But unlike a doctor, our service is free to you, the applicant.
• We assist the applicant to put together the many and various documents required, ensuring that the application (particularly in the case of self-employed applicants) will be acceptable to the banks.
• Unless you actually prefer a face-to-face meeting, we will not take up any of your precious work hours. The interview can be conducted telephonically and all required documentation can be completed by the applicant after-hours and provided to us electronically.
• We can pre-qualify applicants, enabling them to view properties in their price range with the assurance that their bond will be approved! Banks do not pre-qualify clients. They will direct you to the “bond calculator” on their website, but this is by no means a guarantee that you will be granted the mortgage finance you ‘qualify’ for according to the bond “calculator”.
• When you have purchased a property, we can submit your home loan application to various financial institutions simultaneously. This means you only have to provide documents once to get an overview of what is available.
• If your own bank has not made the best offer, we will negotiate with the bank on your behalf, thus ensuring that when you accept a bank’s offer it is the best deal available in your particular circumstances.
An ill-prepared and inaccurate home loan application (one that might be hastily completed by the client themselves or by non-specialized bank staff) can lead to a bond being declined. A “decline” leaves a negative footprint on a client’s credit history. A negative footprint in turn can affect the client’s bank “score” which can affect future applications for credit!
So, what does FNB want?
When applying for their loan a self-employed person must contact the FNB call centre or visit their nearest FNB branch. As we all know, phoning the call-centre or going into a branch can be a time-consuming chore that can quickly devolve into a frustrating exercise.
Imagine you are a small business owner. You are your business. Your time is, very literally, money. Can you really afford to waste it by going to the branch and waiting in the inevitable queues or being placed on hold at the call centre? And when you finally get all your documents together how can you be sure they are in order? Can you be sure that your first time- consuming visit or call is the only one you’ll need to make?
Now imagine that you have managed to do all of this and have finally been approved; how will you know if FNB is offering you the best deal?
The short answer is that you won’t! Unless you are prepared to also personally submit your documents to the other banks and go through the same process all over again, multiple times.
All of what I’ve just described is the result of a system without mortgage originators, a system that FNB has just implemented. Think I’m being a bit dramatic? Here is a case that came across my desk just last week:
A Case Study:
Self-employed and first time buyer, client L was referred to me in April 2013.
His business and personal transactional banking is at FNB and he has a small savings account at another bank. He was interested in purchasing a home but, before embarking on a property search, he very wisely asked to be pre-qualified.
At that stage we realised his proof-of-income documents would not be acceptable to the banks. In the months that followed I provided him with the necessary information, advice and assistance and at the end of October he was able to make an offer on a property requiring mortgage finance of 89% of the purchase price of the property.
Although I had been assisting this client for six months, I very reluctantly had to inform him that we would now, thanks to FNB’s new policy, not be able to submit his application to FNB.
Client L was not happy at this news and was forced to personally submit his application at an FNB branch. As I held all the client’s documents on file, and as a service to a young man who was embarking on the huge step of purchasing his first home, I submitted his application to another financial institution as a ‘back-up’.
FNB – offered him a R500 000 (89% of the value of the property) loan at an interest rate of 13,75% (i.e. 5,25% above the current prime rate). (Bear in mind that his Personal and Business banking is with FNB!)
Other bank – made slightly lower offer of R475 000 (85% of the value) at an interest rate of 9,05% (i.e. 0,55% above prime). And the client has no transactional banking relationship with this bank.
Client L decided to accept the other bank’s slightly lower offer at the much more acceptable interest rate of 9,05% which will save him approximately R367 000 in interest over a twenty-year repayment term.
Abuse of trust
If my services were not available, and because it would have been such a time-consuming exercise for him to personally apply to the other banks, it is probable that client L would simply have accepted FNB’s ridiculous offer. Why would he not accept? The bank, his bank, must surely have his best interests at heart, right?
Without originators this is the kind of trust that can easily be abused. Forcing more clients into higher interest loans because they are unaware of their options or because the other options are too onerous to pursue is the only outcome that I can see this new FNB policy achieving. Being told what to do by someone who is making a profit off of you, is that really how you want to be treated? I’m angry and you should be too!
I want a better banking system. You should too.
I’m a mortgage originator, yes, but this article goes far beyond my professional frustration: I am a South African and I think our banking system needs more competition, not less.
My work allows the home loan applicant to choose between several banks to find the deal that best suits them. This forces the banks to compete for clients. And fair and vigorous competition in the financial system is integral to a healthy economy as it drives efficiency, improves services and lowers costs.
Are these the words you normally associate with the South African banking system? Do you think FNB’s new policy will improve the situation?
Owner of De Mink Property Finance
- How to Guide: Splitting your home loan debit order (homeloansouthafrica.wordpress.com)
- What is happening with banks and bonds at the moment and what are LTV’s? (somersetwestrealestate.wordpress.com)