Discovery Bank says based on reported balances of home loans held by SA’s big banks, a 1% saving on interest rates — which is at the heart of its new home loan product — will save consumers R12bn a year, a proposition it hopes will allow it to make inroads in the competitive market and snatch clients from rival banks.
The fledgling lender on Monday finally launched its home loan product, which it first announced in September.
It said its proposition would offer personalised interest rates on home loans based on clients’ risk profiles, with clients set to be rewarded with a decrease in interest rates of up to 1%.
The break-up of what qualifies one to get the full 1% saving suggests Discovery Bank will be aggressive in increasing the number of clients who use it as a primary bank — the crown jewel in the banking industry.
“If your primary bank is Discovery Bank and you’re managing your money well, that will give you up to half a percent reduction. Our entire Vitality model is about creating the right incentives for people to manage their money well, and that is one of those incentives,” CEO of Discovery Bank Hylton Kallner said.
“The other half a percent is derived from protecting the home loan and the home assets. So if you have building insurance with us, that will give you a quarter percent saving and if you have life insurance to protect the mortgage in the event of death or disability that will give you another quarter percent.”
Discovery Bank’s current clients have nearly R300bn in home loan balances with other banks, providing it with a sizeable base to get clients to switch their loans.
“We feel motivated to change the landscape of home ownership. The unique nature of home loans means client and asset risk typically reduce over time. With high costs negatively impacting repricing or switching to a different bank, the result is that an estimated 60% of our clients are overpaying on their existing home loans today,” Kallner said.
“Clients can lock in a market-related rate upfront, and dynamically reduce interest repayments by managing their money well to save over the long term. Through this shared-value approach, the current Discovery Bank client base could save up to R2.8bn in interest repayments on their current loans, and with the same model South Africans could save up to R12.2bn a year.”
The lender reached break even operationally in the six months to end-December — five years after being launched. It reported a 42% surge in new customers, taking the tally to 825,000. Deposits rose 31% to R16.7bn and advances increased 20% to R5.7bn in the period.
Discovery Bank’s home loan proposition comes at a time when consumers are battered by high interest rates. Business Day earlier in May reported that SA’s biggest four banks have about R98bn of home loans in stage three, which indicates a non-performing loan.
The country’s home loan market is said to be worth R1.3-trillion and is dominated by the traditional banks: Standard, Absa, FNB and Nedbank.
The prime lending rate has risen 475 basis points (bps) since November 2021 to 11.75%, which is 200bps higher than a few months before the Covid-19 crisis hit.
Biggest opportunity
Kallner said the bank’s biggest opportunity would be with people who already had loans, instead of new home loans based on the current market.
“It is well documented that the new home purchase market has slowed down as interest rates have risen. It is not that the new home loans market is insignificant for us; it’s just a smaller opportunity at this current time,” Kallner said.
The first-quarter barometer by mortgage originator ooba shows that while SA’s residential property market sector is in a rut, it is poised for a gradual recovery.
According to the oobarometer, the higher-for-longer interest rate environment has affected ooba Home Loans’ application volumes for the quarter.
Discovery Bank’s home loan will be administered by a dedicated team from SA Home Loans.
SA Home Loans has to date assisted more than 300,000 people become homeowners in deals that equate to about R170bn in lending.
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.