C A T A L I S

Still a market for new mortgages - The Times - Published:Oct 14, 2007

Well-bonded: Simon Stockley, founder of home-loan company Integer

Former SA Home Loans boss bullish despite sub-prime crisis, writes Marcia Klein

Ahead of yet another interest rate increase this week, former SA Home Loans boss Simon Stockley launched a new homeloan company on Monday.

Integer aims for credit approval within 48 hours. Loans will be offered up to 85% of the home value, and up to R2.5-million. Financing of its loan book will be via securitisation, a technique pioneered in South Africa by Stockley and SA Home Loans.

Marcia Klein caught up with Stockley on his way to Paris.

Is this a good time to launch a new homeloan company given rising interest rates, the credit crunch etc?

Timing is not ideal but then I guess no time is perfect to launch a company. In many respects, however, it works to our advantage.

We are aware and can take cognisance of investors’ concerns and build our loan portfolio in accordance with the lesson learnt from the crisis.

What kind of response have you had since launching?

It has been fantastic — R100-million in applications in the first 36 hours and R120-million by the end of the first week.

As the advertising kicks in this week and mortgage originators come on board we expect higher volumes, with the real spurt towards the end of the year when we launch our own branded sales force. This being said, however, a mortgage business is built slowly, one loan at a time.

Are these new loans or switches from other home loans?

Sixty percent switch, 30% new purchase, 10% refinance on existing bond-free property. Too early to call this a trend but it’s broadly in conformity with our expectations and market research.

What is the difference between Integer and other homeloan providers? You say it is cheaper. How much cheaper and how do you do that?

Price competitiveness, and to an extent parity, is now part of SA’s mortgage landscape. Consumers have been educated to a large extent to shop around and negotiate for a good deal.

It is sad, however, that in many instances loyal customers have to threaten to leave to get a better deal and new customers to a bank often get a better rate than existing clients.

Integer intends levering off its technology platform to compete on price and on service across the full range of banking products. We are not promising to be the cheapest in all instances, but within our target market we are promising to be highly competitive. More importantly, we are adding further choice to SA consumers.

You founded SA Home Loans. Is Integer a copy of SA Home Loans?

Not at all — its funding mechanism [securitisation] is similar but the product offering includes full transactional and Internet banking and the positioning is different.

Loans are up to 85% of the home value so people need to have either paid off some of their loans or must put in 15%. Does this lower your risk?

Yes, in line with the conservative approach to credit. We will relax and expand over time, but given the global credit squeeze we though it prudent to proceed with a level of caution.

What kind of client are you targeting?

The middle income/mass market, with target of loans between R350000 and R2.5-million. From a consumer perspective we are taking what is essentially a private bank offering [one account/sweeping of salary/Internet banking] and extending it to a mass retail base.

What is your view on the sub-prime crisis?

Good wake-up call for the market — credit extension and lending, predominantly in the US, had become reckless and a correction was probably overdue. But the market has tended to overact and now even good-quality portfolios are being tainted.

I expect normality to return over the next six months and for asset managers to once again seek out good underlying collateral. The process has been a healthy correction.

Do you think it will extend to SA?

No. SA capital markets have been largely protected, although there has been some widening of credit spreads with investors seeking a slight premium for perceived increased credit risk. At the retail level we don’t have what could be regarded as a sub-prime market and at the investor level fund managers generally have entrenched relationships with issuers and an understanding of the assets supporting an issue.

When did you leave SA Home Loans and why?

I left in October 2003. It was by that stage a mature business with 500 staff, a mortgage portfolio of over R20-billion, four securitisation issues and over 50000 clients. My sense was that my work there was done and that it was time to hand over to a maintenance management team. I spent two years in Saudi Arabia setting up a Sharia-compliant mortgage bank and doing the first Sharia-compliant property securitisation transaction.

You did not stay there too long. Are you planning to stay at Integer or do you see yourself as a starter of businesses?

I was there for six very happy years. I have no specific time frame for Integer but my mandate — which is similar to that which I had at SA Home Loans — is to get the business going, establish the brand and the corporate culture and move on. Very much in line with my business philosophy and skill set; that is, start-ups!

Your views on the property market now and over the next five years?

The market is coming off a period of prolonged and sustained growth. I expect that trend to continue albeit not at quite the same dramatic rate. I am still bullish on property, particularly in the run-up to 2010, and see annual year-on- year growth of between 6% and 10% for at least the next five years.

Are you seeing the emergence of black diamonds in property sales and bond applications?

Yes. The emerging middle class is driving a lot of the activity in the mortgage sector. Exciting thing for us as a new entrant is that this segment does not have strongly entrenched relationships with their banks and, in fact, are often distrustful of the big four so this sector represents a clear target market for us.

How many properties do you own and are they mortgaged?

Two — one in Durban and one in Knysna. One is bonded and one is not. I am currently switching my bond from ... I won’t say who from but you can guess! ... to Integer.

Do you still think that property is a good investment in SA given the huge price increases over the past few years?

Absolutely. Demand is still good and despite recent price increases, I am of the view that property in SA is still undervalued in global terms.

For the full article on the Times website, please visit : http://www.thetimes.co.za:80/article.aspx?id=586155