look for a better loan deal

Property experts have called on homeowners and those searching for property to become "rate tarts" in order to limit the pinch of rising interest rates and the current cost of living.

"Rate tarts" is a term coined in the UK for consumers who constantly chase better deals from lenders, said Simon Stockley, chief executive of Integer.

He said: "As interest rates continue to soar, home buyers will have to negotiate more aggressively with lenders."

He believes that the current economic climate is conducive to South Africans developing a culture of bargaining and looking for better deals.

The dwindling demand for property might influence lenders to be more willing to bargain - something they have been extremely reluctant to do in the past," he said.

"Amid soaring food and fuel prices, clinching a good deal on a home loan could offer homeowners some relief."

Though lenders offer various incentives such as household insurance, it is the interest rate that consumers should be interested in, Stockley said.

Traditionally South African banks had a tendency not to compete on price and never advertised their lending rates.

A borrower was expected to negotiate a discount to the quoted lending rate (prime) and these discounts had, by and large, been secretive and weren't handled on an ad hoc basis.

Shrinking margins and activity in the property sector might well change all of this, and Stockley sees a new era in which banks might now actively advertise and compete on price.

"In this way they will potentially erode each others' market share," he cautioned.

Another significant development is the emergence of a cancellation or defend rate.

Stockley said this happened when an existing client of a bank threatened to cancel his mortgage and move to another lender.

The action, he said, prompts the bank to offer a further rate concession to the irate client in order to prevent them switching.

To take advantage of this new phenomenon, Stockley encouraged customers to actively engage with their existing lenders and to discuss with them the possibility of switching their mortgage in order to extract maximum leverage.

The costs involved when moving your mortgage from one lender to another, which are estimated at about one percent of the value of the loan, could easily be recovered within 18 months of making the switch, Stockley said.

Since June 2006 interest rates have increased from 10,5 percent to the current 15 percent.

This means if you bought a house for R500000 in July 2006, you would have been paying R5332 a month.

Now this instalment has increased to R6583 a month, a 23 percent increase in your repayment amount since July 2006, Stockley said.

Other experts encourage consumers to shop around and secure home loan approval at the best interest rate.