In what seems to be a counter-intuitive move in a high interest rate environment, Discovery Bank announced this week that it will enter the home loan market in 2024.

There are currently about 1.6 million mortgages in South Africa across the banks, according to analyst Charles Russell of SBG Securities.

Chief executive of Discovery Bank Hylton Kallner confirmed that the bank will offer home loans at competitive interest rates of up to prime less 1.5% (that would currently work out to a rate of 10.25%).

Since November 2021, consumers have absorbed rate increases of 475 basis points, taking the repo rate and prime lending rate to their present levels of 8.25% and 11.75%, respectively.

The higher rates have served to drive up instalments and dampen affordability as consumers have buckled under the burden of larger debt repayments, less disposable income and higher debt-to-income ratios.

The Eighty 20 Credit Stress Report for the second quarter of 2023 showed that the balance on all South African consumer loans was up 1.9% quarter-on-quarter at R2.37-trillion, while overdue balances had increased to R189-billion.

This significant increase in overdue balances was primarily driven by a 37% (R4.7-billion) increase in the overdue balance of home loans.

For those with an overdue balance on their home loan, the average overdue balance increased from R46,034 to R56,510, or an average of 10 additional monthly payments required to catch up on the overdue amount.

On the flip side, Nedbank did reveal in its interim results for the six months to June 2023 that for every 1% increase in the interest rate, it pulls in another R1.8-billion in revenue before taxes.

That could be sufficient motivation to overlook the threat of non-performing loans, especially if Discovery Bank is very picky about who it chooses to grant loans to.

The bank told Daily Maverick that each client would be individually assessed and offered competitive risk-based pricing to determine their individual contracted rates.

“These rates can be reduced by a further up to 1.5% based on a client managing their money well and protecting their investment, meaning they could potentially get rates of less than prime less 1.5%.”

According to the South African Reserve Bank, the average pricing of all home loans in the market is currently about prime minus 0.35%. 

Discovery says it will accept applications with up to three co-applicants. The interest rate discount will be determined based on the main applicant’s engagement and financial behaviour.

Kallner says the announcement means that Discovery Bank clients will be able to access home loans, insurance for their homes and families, and access additional financing and exclusive solar solutions.

Discovery Bank’s energy solutions give clients access to solar, inverters and portable backup power, with financing of up to 72 months and installation within 48 hours.

Discovery Bank’s revolving access facility will also provide clients with immediate access to a flexible credit facility to use as and when they need it, whether it’s for transfer fees, home renovations, maintenance or new furniture. 

Value-adds include discounts of up to 30% when using Discovery Miles to shop at retail partners including Coricraft, Makro, Takealot and YuppieChef. DM