Bond switching to make a big impact on home loans in 2025

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As interest rates remain stable against the backdrop of a challenging economic climate, banks are being pushed to innovate and offer more competitive home-loan terms to attract customers.

This comes at a time when the South African Reserve Bank has maintained a steady approach to interest rates, with a drop in consumer inflation prompting predictions of a hold on rate cuts until potentially this quarter. Bredenkamp says that the current economic conditions have nevertheless made it essential for banks to reevaluate their loan models, balancing caution with the need to meet their targets.

One of the more attractive aspects of the evolving market is the opportunity for consumers to reduce the interest on their home loans through switching their existing bond from one lender to another.

“A reduction of 1% in the interest rate can significantly affect both the monthly payment and the total amount paid over the life of the loan,” notes Bredenkamp. This factor plays a crucial role in consumer decision-making, especially considering the long-term financial commitments involved in property ownership.

The UK market is a robust example of how bond switching can enhance competitive rates among lenders. It is uncommon for homeowners in the UK to stay with an original lender for the entire term of their mortgage. Instead, they switch to other lenders up to three or four times over the life of the loan to capitalise on better offers, which are facilitated by agile back-end processes.

The shift is changing the way consumers think about their home loans. Where once a bond was seen as something you held onto for life, more and more South Africans are now shopping around for better rates and terms.

Over the past six to nine months, there’s been a marked increase in bonds being switched that aren’t linked to new home-loan transactions.

This is something that lenders, historically, have never had to deal with, as very few, if any, have considered re-pricing consumers who have been diligently paying down and servicing their bonds for 10 years or more.

The trend towards bond switching looks set to continue, driven by consumer awareness and more competition among lenders, especially as lenders are now realising the need to retain these lower-risk customers who have proven themselves over time but haven’t benefited from their improved risk profile.

The costs associated with property transfers, such as bond cancellation and re-registration fees, have traditionally been a significant barrier to switching for many consumers.

This may also start to change to a point where lenders absorb these costs, particularly in cases where the loan-to-value ratio is low, and the risk to the bank is minimal.