Tuesday, May 16, 2006

Bond Originators

Hey, I’ve bought a house after scouring Jo’burg from Parkhurst to Jukskei Park. Sadly it’s not in one of the more fashionable characterful old-Joburg suburbs that really do appeal to me but in the rather middle class face brick early 80’s suburb of Paulshof. It’ll do nicely though, and for the price has plenty going for it. Anything will better than the claustrophobic cluster thing being rented at present.

Now begins the admin. Starting with financing the place. The estate agent, who also happens to be the owner of the house I am buying, gets some commission from bond originators, and since I have not too much to lose by using one I use the one she recommends.

I have no quarrel with the originators themselves. In my experience bond originators have generally provided pretty good service. It is really an ideal setup – they are commission hungry and work hard to get the “sale” from you. Once they have set you up with a bank at a suitable rate, they do not (and are not expected to) have any further contact with you. .i.e the service relationship thereafter is with the bank, not the originator.

The quarrel that I have is with the banks. Why do I need a third-party broker to go to my bank, where I have been a client since they trapped me with a cheap student loan, to negotiate a suitable terms of transaction for me. I have tried to go the direct route and it is clearly more onerous and less likely to succeed than the route of using an originator.

Yes, the originators claim “You do not pay for this service as the bond originator gets a commission from the bank that you choose for your loan”. All good and well, but this inefficiency has to get paid for somewhere. It must end up in the bank charges and other fees the big 4 banks seem to be
milking from us.

My understanding is that this is not some Mickey Mouse commission being earned here. The commission rates are in the order 1 to 2% of the registered bond amount. That’s pretty steep for at most an afternoon’s work. (ie R10k to R20k on a R1m bond). And the Estate Agent who refers you to the originator also takes a cut. No wonder the origination market is so flooded. I don’t blame them – I blame the banks who are too slack to improve their own basic service levels that they have to outsource them at my expense.

If the banks offered an option to get a 2% upfront deduction from my loan if I went directly to them then I would even consider putting up with their inefficiency, but until then I will go against my logical judgment and use a service that is economically inefficient overall but more beneficial to me.

In my case I have elected to take my “prime less 2%” rate from a bank other than my own because they responded to the originator faster. This despite some subsequent pleading from my own bank (who would like my business but still couldn’t better the rate being offered). Perhaps my biggest regret is perhaps not buying gold when I was frustrated by the whole property market
earlier in the year (when gold was just over $500/oz compared to the +$700 it is now).


Third World Ant said...

1 - congrats on the house! (though I assume that from your prior experience with bond originators, then this isn't your first house). Still trying to make that leap myself, but owning assets scare the crap out of me. It symbolises (in my mind) being tied down, debt, heaps of admin. I'm still trying to overcome this fear to buy myself a new car!

Which direction do you travel to work in? Hope the traffic's not going to cause you to slit your wrists :)

2 - bank inefficiencies. My experience with any big organisation (I work for a business consultancy, so get to see the insides of our large clients) is that inefficiency is practically a way of doing business. They get the economy of scale from having so many clients, that they feel they can afford to slip up in numerous areas - such as responding efficiently to your needs (in a way that would also save them money by not having to pay commissions to third parties). It would be interesting to see how many jobs have been created through major organisations' inefficiencies (such as bond originators, who see the gap in service) - perhaps insurance and investment brokers fall into this category too.

Peas on Toast said...

Yes congrats indeed!

Youre one step further than me. I'm still paying my ladlady's salary. And being the bitch she is, I don't like it one bit. *sigh*
(TWA is paying her salary as well. *double sigh*)

ATW said...

Thanks for the one up on the house. You cannot believe what a relief it is not having to wade through the Saturday Star property section any more, and ironically I found the place by just following an Estate Agent’s boards on a bored Sunday pm!. Sure it doesn't quite have the (partial) view of Noordhoek beach which was the one that had to get sold to move to JHB. Got into the mkt just in time with that one..& made some loot but have now blown it all again. Owning a place is for me a largely sentimental thing, place to lay one's hat etc, and the ability to not have to worry about the landlord when I hammer a nail in the wall.So it's not really about the owning it for investment or anything. Yes it is admin & DEBT!!! but nothing a heavy slug of Hansa doesn't cure, and hopefully I can now become FICA compliant and actually get something with my home address on it to prove to the bank that I'm not some dodgy money launderer. Traffic will be worse, but at least it's not Fourways!

Peas & Ant, saw the pic of yr place the other day on the mushy site, seems great & as peas spelled out seems to be serving it's purpose very well for the time being.

'Ant, If major organisations were more efficient you and I & half of the so-called “professionals” out there probably wouldn't have jobs either.

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