The decision by the South African Reserve Bank (SARB) to cut interest rates by 0,5% shows that the housing market has returned to a weakening trend and this would seem to set the scene for a relatively good buying period.

So says John Loos, property economist at FNB, who adds that despite the repo rate dropping to 6% and the prime rate falling to single digits from 10% to 9,5% for the first time in three decades, home owners should still not be lulled into a false sense of security.

“Potential buyers should be aware that this does not mean that there are no housing-related cost increases. Municipal rates and utilities tariffs are set to be a key source of housing-related cost increase in the next few years, as utilities look to find the funding for much-needed infrastructure. Eskom is presently the biggest driver of home-related cost increases.

“In addition, applicable especially to Gauteng, looming large is a major increase in transport costs for many people, as many of the province’s freeways are set to become toll roads.

“What the SARB is currently giving, other authorities are taking back.”

He says one would therefore be well-advised to buy a home well within one’s means, making provision for the big housing-related cost increases, and rising transport costs mean special consideration for location relative to one’s commuting destination.

Jacques du Toit, property strategist at Absa, said based on the latest cut in interest rates, mortgage repayments will now be about 31% lower compared with late 2008, when the mortgage rate was at a level of 15,5%.

“The cumulative 600 basis points worth of interest rate cuts since December 2008 have caused the cost of servicing household debt, including mortgage debt, to drop significantly. However, many households are still struggling with a high debt burden, with the ratio of household debt to disposable income above the level of 78%. The forecast is for the debt ratio to remain around this level towards the end of the year and into 2011.”

According to Absa’s calculations, house price growth slowed down to a nominal 7,1% y/y in August 2010 on the back of the base effect of a strong recovery in price growth in the second half of last year. “House price growth is expected to taper off further towards the end of the year, and to remain in single digits in 2011. The lower interest rates, however, will support the property market, but are not seen as a major stimulating factor.

“After bottoming in late 2009, year-on-year (y/y) growth in household mortgage advances remained relatively low in the first seven months of this year, reflecting conditions with regard to household finances, the extent of consumer confidence, and the effect of the National Credit Act (NCA). Household mortgage advances will be supported by the low interest rates, but are forecast to continue to record single-digit y/y growth in the rest of 2010.”

Loos said the short-term positive impact of the latest cut will be too small to change the weakening trend in the property market. “This is because the negative factors slowing the market at present appear significantly more powerful. These are twofold, i.e. a slowing economy as well as the wearing off of the huge interest rate stimulus emanating from 5 percentage points worth of rate cuts in the period December 2008 to August 2009.

“The wearing off of such a major stimulus can hardly be offset by today’s small interest rate reduction. Therefore, we expect the ‘mini-cycle’ slowdown in the residential market to continue, with y/y house price inflation (at 7,2% in August) to continue to decline steadily towards year-end.”

Dr Andrew Golding, CE of the Pam Golding Property group, says this is good news for existing home owners and for prospective home buyers. “Although the residential property market has shown some increased activity in terms of sales volumes (ie units sold), the ongoing constrained economic conditions and limited access to bond finance, coupled with the significantly increased electricity and rates tariffs, is still hampering significant recovery in the housing sector.

“With the arrival of spring, there is usually a natural seasonal increase in activity in the property market and there is every expectation that this season will be no different, particularly given the fact that the market experienced an ‘unnatural’ slowdown during the six weeks of the Soccer World Cup and appears to be catching up.”

Golding says some signs of green shoots of recovery are there, albeit to at least the market activity levels that were present in the run-up to the World Cup. “These activity levels are in themselves 30% up on last year (2009). A number of factors are responsible for this recovery and include improving market sentiment, i.e. a sense that the market might have reached the bottom; improving bank lending; greater realism amongst sellers regarding the current market value of their properties; and an increase in the number of buyers looking to transact.

“Show house attendances are generally on the increase – in line with expected trends for this time of the year. We have also seen the slow but steady re-emergence of buy-to-let investors in all the major metropolitan areas of the country. International enquiries, while generally slower than in previous years, have also begun to increase. In respect of the development market, there are growing indicators that the larger developers are poised to begin re-entering the market.

“As far as house values are concerned, our view is that for the remainder of this calendar year, prices will remain relatively steady with house price growth expected to be somewhere between 0% and 5%.

“From the perspective of price sectors most in demand, there is very little change to the status quo which has been evident for some time, namely with the market from R800k to R1,5m being the most active. However, with properly qualified buyers and realistic sellers, properties are moving in all price segments from the affordable housing segment right through to the ‘über prime’ market.”

Samuel Seeff, Chairman of Seeff Property Services, says although the rate cut was much-needed and expected, a bolder approach would have been welcome. “We would have liked to have seen a cut of 0,75% or even 1% as a boost to the economy.

“However, this issue is not as significant to the market as the banks’ approach to lending. If we are going to have any sort of kick-start to the property market, it will come about as a result of banks reducing their criteria in terms of approving loans.

“The interest rate is not the factor that is holding the market back right now – it is the banks. We are not even talking about 100% loans-to-value bonds being rejected – there are people prepared to put in equity, and the banks are still not approving them. If they could start to relax on their criteria this would begin getting the market going, and would be of benefit to all.

“I am not asking for banks to give 100% loans. I think their focus on ensuring that the buyer/investor puts some money into the transaction is a good one. However, we have seen cases where the buyer is asking for no more than 50% and is putting in as much as R1m or R1,5m and looking for another R1-1,5m, and this is still not approved.

“It is this type of thinking that holds the market back. There is sufficient buyer interest, enough attendance at showhouses and plenty of buyer viewing, but the offers to purchase which are not being approved are holding back the market at the moment.”

Jan Davel, the new MD of the RealNet group, says the minimum monthly repayment on a 20-year home loan of R500k will now decrease by R164.

“This will obviously be of some help to existing homeowners, but the real benefit of the Reserve Bank’s decision this week is that it will make it easier for potential homebuyers to qualify for loans. For example, the monthly earnings required to qualify for a R500k loan at 9,5% will be some R15,500, compared to the R16,100 required at the previous prime rate of 10%.”

And prospective buyers, he says, will be further assisted by the fact that the rate cuts will shrink their existing monthly expenditure, which in terms of the NCA must also be assessed before a loan can be granted. “Repayments on cars, furniture, clothes and credit cards will all decrease.

“What is more, with a good credit record and a deposit, some borrowers will even be able to secure loans at below prime rate, making it even more affordable for them to buy property.”

However, he does not expect the rate cuts to prompt a spate of new borrowing or an immediate spike in residential sales, but rather to help the property market maintain its current momentum towards full recovery.

“For one thing, there is quite a shortage of affordable, entry-level stock at this stage, because developers are bringing very few new small homes to the market and the average price of existing small homes has climbed steeply in the past year.

“And on the other hand, the middle-market upgrading that might have been boosted by the rate cuts will be quite constrained, we believe, by the effect on household budgets of higher municipal rates and service charges. Most existing homeowners will probably rather take this as an opportunity to reduce debt – but that will benefit the property market in the longer-term.” – Eugene Brink

By choosing Mortgage Plus for a loan, you will get professional advice to make sure you are getting the best deal possible.

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With banks beginning to relax their lending policies supporting a revival in the property market now is the time to apply for a bond.

“With the relaxation of lending policies there should be a much improved chance of being approved for a loan on favourable terms. “Banks are once again offering 100% loans and the current lower interest rates make it a better time for consumers looking to buy.”

Getting that bond approval.

Checking affordability

Before you even apply for a loan, check whether the property is affordable.

“Determining the right price range is an essential first step to avoid wasting time looking at unsuitable properties. Our Mortgage Plus property finance consultant will take you through the exercise of establishing what you can afford, taking into account your specific financial requirements. Monthly repayment affordability is generally calculated at 25 to 30 percent of joint gross income, but other criteria, including existing debt commitments, may affect the size of the loan that the bank will grant. Remember that the ‘hidden costs’ (transfer and bond registration fees) usually have to be paid upfront, and add a sizeable amount to the cost.”

Get prequalified

One way to ensure that the loan you apply for will be granted is to get a prequalification. Companies, such as Mortgage Plus, will at no cost, prequalify you for a certain bond amount which takes the stress out of applying for a bond once you have decided on buying a property. An additional positive factor is that buyers who are prequalified are in a much stronger position to negotiate with sellers.

Check your credit record

Bond applications may be declined for several reasons: you may not be able to afford the monthly loan repayments, or may require a 100% loan that would push the repayments beyond your reach. Another critical consideration is your credit profile.

“This includes your employment history and consumer bureaux results, which provide a picture of your debt and payment history. If the bank considers you a good credit risk, it will assess the value of the property to be purchased. If this too meets all the relevant criteria, the loan is usually granted. Mortgage Plus also often motivates the merits of a particular loan application to the bank’s credit manager.”

To improve your credit record you can start cancelling out-of-date credit cards; and ensure that you pay all instalments on existing debt by the due date every month.

Submit the correct information

To assist the bank in determining its risk, you will be required to provide personal information such as bank statements, salary slips, a statement of assets and liabilities, a statement of your monthly expenses and information on your credit history, including whether you have ever been insolvent.

If you go through an originator, such as Mortgage Plus, they will ensure you have all the correct paper work to avoid unnecessary delays.

Get the best interest rate

The lower the bank’s risk in lending funds to a particular borrower, the better the rate it will offer that individual. In calculating its risk, it will consider factors such as the amount of equity you are willing to invest into the property, i.e. your deposit; the size of the loan; and the repayment-to-income ratio (the ratio between the bond payment and the buyers income).

The type of bond you apply for, your credit history and the investment value of the property you intend buying also affect the rate you will be offered. Shop around and negotiate with various banks to ensure you get the best package. A convenient way to do this is through the services of a mortgage originator who facilitate it all on your behalf as a free service.”

“While a deposit is not always required, try to put down 20% or more if you can, as the bank is more likely to offer you a better rate as the risk of the loan is reduced,”.

Use a mortgage originator

Finally, we suggests that consumers looking for the best deal on home loans should make use of a mortgage originator.www.mortgagepluscc.co.za

Mortgage originators specialise in shopping around between banks and negotiating the best deal for the customer for free.

“Obtaining a preferential rate of just 0,1% below the prime rate can make a big difference to your monthly repayments. However, in negotiating the best package, the mortgage originator needs to take more than just the rate into account and will structure a package that best suits the individuals needs overall.

“With the property market beginning to perk up and banks loosening lending criteria as well as granting 100% loans, now is the best time in the last two years to apply for a bond.

To Apply For Your Bond Please Go To www.mortgagepluscc.co.za or call us on (011)327-4489