PROPERTY FINANCE : What banks are looking for

The property market is slowly recovering and investors are scouting for deals. However, while the banks have started lending more than last year, it is still difficult to obtain finance in this market. Just three years ago credit was easy to come by. Everyone from retailers to micro-lenders were dishing out credit. When the world hit recession, the money dried up. The only applicants to be awarded finance were those who could show that they didn’t really need it. Furthermore, the finance that they did receive was expensive. While a discounted lending rate of prime less 2% was not something to get too excited about in 2006, just a year or two later, investors were lucky to receive any discount at all.

It is important to remember that bank managers are not investors. They seldom understand the principles of property investment- that is let the tenant pay the bond repayments while the investor enjoys the compounded income and capital growth. Therefore, the key to getting finance at a competitive rate, is to think like the bank manager. The investor who has built up equity in other properties may perceive oneself as less risky than an owner occupier by having the ability to sell a property if running into financial trouble. The bank manager however prefers financing a “less exposed” owner occupier who will cut back on other expenses if necessary to remain in his or her home.

According to renowned international investor Dolf de Roos, getting finance is all about psychology. Don’t ask the bank for finance, rather offer them the opportunity to finance your property. The key is confidence and understanding that the bank also stands to benefit from the transaction. The banks typically look at four main factors when assessing a finance application.

Capacity

The applicant’s ability to repay the loan is determined by their monthly income. As a rule, up to 25-30% of an applicant’s gross monthly income may be used in servicing all of their mortgage repayments. Usually only about 50% of rental income being derived will be added to the applicant’s salary. The bank will also assess the net income of applicants to ascertain whether there is enough income to service the bond after deducting all the applicant’s expenses. Self employed people are generally perceived as higher risk.

Character

The bank will do a full credit and employment check in determining whether the applicant can support the loan. Any negative listings will affect the applicant’s chances of getting credit even if the outstanding debt is very small. Too many previous applications for credit may also count against the applicant. The bank will also verify employment and may refuse credit to workers on contract.

Collateral

Many of the banks will offer an “approval in principle” to applicants meeting the above mentioned “capacity” and “character” requirements for the loan. The final approval will depend on the valuation performed on the property. While most banks are claiming to offer 100% loans, the more common maximum is a 95% loan to value offering. For investors, many of the banks are only lending up to 75% of the value of the property.

Conditions

The final factor affecting applicants is one in which they have very little control- the conditions in the market. The retail banking industry in South Africa is dominated by only four major players. While the big four were intent on increasing market share during the boom times, they are now intent on limiting bad debts. Remember, they are not investors and do not see the potential which the property market offers. All they see is unemployment and a softer economy. Give them a few years and 110% loans should be available yet again.

Please contact us if you require any further information or would like to apply for finance:

Complete this short form online

011.327.4489 / 0861 1111 93

morne@mortgagepluscc.co.za

www.mortgagepluscc.co.za

100% Home Loans in South Africa

There are so many conflicting reports these days as to which banks offer 100% home loans and which don’t.

Let me clear that up for you. Just keep in mind that sometimes it depends if you also have your personal bank account at that bank or not.

Absa Home Loans - On home loans of under R1.5 million, maximum loan of up to 90% if the applicant with the biggest salary banks there. Maximum 70% if you don’t bank there.

If you earn under R15 000 per month (joint or single income) you can qualify for up to 110% loan – this means no deposit, PLUS all your attorney fees are covered.

Standard bank Home Loans – On home loans of under R2.5 mil, a maximum loan of up to 90% – Standard Bank have advertised that they offer 100% home loans if you work directly with them and not through an originator, but I have yet to hear of more than 1 client confirming that they got a 100% loan from Std Bank.

Under R15 000 income you can qualify for up to 104%, which is also the full purchase price plus costs.

FNB Home Loans – On home loans of under R2 mil up to 100% loans. If your income is under R15 000 you can also qualify for a up to 104% home loan

Nedbank Home Loans – up to 100% home loans if the purchase price is under R3 mil.

SA Home Loans – 95% home loans for purchases.

They also have a new offering of a 90% home loan with interest only for the first 3 years. This means better house – for the same instalment. So you get the home you really want. With EDGE, clients pay the lowest possible instalment – the interest only – for the first 3 years, then revert to a standard loan for a further 20 year period. This makes it ideal for clients who want to buy up now, knowing their income will grow to match their repayments.
 

CONTACT US

Speak to a home loan consultant about financing your new property or reviewing your existing mortgage. We are able to assist in lowering your bond repayments and securing attorney discounts.

Complete this short form online
Call us on 011.327.4489
Email: morne@mortgagepluscc.co.za

www.mortgagepluscc.co.za