The current dynamics and the future of mortgage distribution in South Africa

M.B.A.Estimated to contribute between 15-20% of earnings for each of South Africa's biggest four banks, ABSA, Nedcor, Standard Bank and FNB mortgages are the biggest contributor to the banks' profits. The economic stability that followed the emerging market crisis buoyed the mortgage industry. This, and the growth of the 'previously disadvantaged' segment, with its historically low house ownership levels, has meant that the mortgage industry is the biggest and fastest growing industry in South Africa. The positive outlook of the South African mortgage industry created by the above factors has attracted new players into the industry at various levels of the value chain. The beginning of 1999 saw the launch of South African Home Loans (SAHL), a lender that focuses on low risk buyers. Latter in the same year various estate agents teamed up to form MortgageSA, now the biggest originator group in South Africa. SAHL by focusing on low risk clients was able to offer buyers very competitive rates thereby forcing the more established banks to give away significant discounts on new mortgages as a way of protecting their market share. The 'birth' of originators have had the same detrimental effect. The originators by obtaining exclusive rights to mortgage applications generated by the estate agents and latter 'selling' them to the banks have increased the banks' acquisition costs. In 2000 alone it was estimated that originators cost the banks an extra R24million. The overall effect of the increased acquisition costs and the rate discounting has been the decline of margins. The response of the banks to the declining margins has been to adopt a high volume, low margin strategy. This has forced the banks to focus on the control of distribution channels as a means of obtaining the required volumes. In South Africa mortgage origination is mostly controlled by the intermediary channels Le. estate agents and originators with relatively little business going through the direct channels Le. internet, branches, home loan consultants and call centres. Collectively intermediaries account for 75% of total originations and direct channels 25%. Whether or not this balance between intermediary and direct originations will be..