Mortgage Special Report Quarter 2 2013
Foreign banks inject competition into the mortgage market
• Standard Chartered Bank is offering 12.9 per cent for 45 days, but conditional on uptake of a bundle of products
• This short-term promotional rate is a new phenomena
• However, CFC Stanbic took lead position with the best mortgage rate, on a cut from 17.0 per cent to 13.5 per cent
• Despite claims of holding rates high on election concerns, only half of the banks assessed cut rates in Q2
• Consolidated Bank, Diamond Trust, Chase Bank, Equity Bank, Family Bank, Housing Finance, and NIC Bank all remain at rates of 18 per cent to 19 per cent
• This represents a 10 point or more spread over the CBK rate of 8.5%
• Average rates fell to 16.6 per cent, from 17.7 per cent three months ago
Total returns on mortgaged house purchases
A comparison of the costs of a variable mortgage, versus the gains in house price appreciation and rental income in each year.
Average lending rates over the last ten years.
Total returns from a mortgage buy (house price capital appreciation + rental income per year) less the annual cost of a mortgage will illustrate whether or not the mortgage is a profit or loss per year.
When the black line rises above the red line, you are making a profit even with the cost of the mortgage.
Foreign Banks are getting creative in their drive to capture market share by offering lucrative special rates and bundle packages.
Standard Chartered Bank are leading the way with their 45 day offer at 12.9% p.a. floating rate. However this rate although the lowest currently in the market comes tied with certain other products e.g. credit card and an overdraft with a view to building a more holistic offering.
On pure mortgages, CFC Stanbic in response to Standard Chartered Bank is now offering 13.5% to compete with the regular Standard Chartered Bank rate of 13.9% if one opts to take the mortgage product alone.
The threat of introducing Capital Gains tax may create a major challenge to market recovery and stifle the much needed growth of the mortgage market.
With the threat of reduced returns and an aggressive rental tax regime, the rental market will become very unattractive as lower returns on rental properties were offset by the better capital gains on the property purchased increasing the net return.
With the looming introduction of the Capital Gains tax, the Government will need to ensure it does not kill the golden goose by overtaxing the industry.