Information on how to apply for bond finance to help purchase a home has been disseminated by SA’s banks and bond originators in a steady stream for some years.

Yet says Rob Lawrence, he and his team find themselves daily dealing with false assumptions which often reveal a deep-rooted ignorance as to the rules of property purchasing and how to finance these transactions.

Lawrence is now in the process of distributing a short memorandum on this subject to Rawson Properties’ 146 franchisees countrywide. He says this should “help scotch some wrong ideas” on the part of aspirant home buyers and avoid wasting unnecessary time in the home loan application process.

Entitled “Six common misconceptions about home purchase finance”, Lawrence’s memo lists the following as beliefs that most commonly lead to problems:

1. Minor or not too serious credit defaults in one’s past will either go undetected by the banks or will be overlooked.

“There is a perception that, for example, a missed instalment or two on household appliances or a car is no great issue. However, every credit payment failure is a black mark on the applicant’s record and the chances are high that it will have been recorded.

To get a big percentage bond, you have to have a completely clean record,” says Lawrence. A bank might still make an offer to such a client, but it certainly will not be above 90%.

2. Those able to get a loan at 2% below prime previously will be able to do so again.

This misconception crops up regularly with those who bought in the boom times prior to 2007 and probably did get a very favourable rate then, says Lawrence.

He says today the banks are pricing for risk (as they perceive it in the client’s position) and for increased profits. In practice this means that, even with “good” clients, bonds are typically awarded at the standard rate or often above it, i.e. 9.5 or 10%. Those who now get even 1% below prime, says Lawrence, are the fortunate low-risk few.

3. The applicant’s own banks will give them the best deal.

Lawrence says regrettably every bank has different lending policies and different views of risk. “Every loan is treated on its own merits and, as the banks’ lending criteria are all different, the borrower will quite possibly get a better deal from a bank he has never dealt with before.”

4. A bank valuation on the property means that the bank has given it a “clean bill of health” and it is in an acceptable condition.

This is not the case, he says. The bank valuer’s task is simply to assess the market value of the home at the time it is bought.

5. Home buying and getting bond finance are not for the poor.

Lawrence says this is definitely not the case. SA’s banks he says have committed themselves to the affordable (R350 000 to R500 000) market and, if anything, are inclined to be a little more lenient in their rulings here than on the more expensive properties.

“The goal is to make South Africa a property owning nation, and the latest figures from FNB do show a big rise in first-time home buyers, who now comprise 23% of the total.”

6. The bond applicant working overseas and earning a big salary will be considered a good loan risk.

Again, says Lawrence, this is not true – the banks have seen too many cases in which, on returning to SA, the high wage earner has had to settle for a substantially lower salary which in turn, has made it difficult for him to service a big bond perhaps granted on the higher income he was earning overseas. The banks therefore tend to limit overseas applicants’ bonds to between 50% and 70% of the purchase price, he adds.

Is there a general rule of bond financing illustrated by these common errors?

According to Lawrence the rule is that those who persevere win in the end.

“It may take time, but if the applicant works at qualifying for a bond, he will often do so in the end, even if he has to lower his sights in the process.”

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

Strong indications show that, after a three-year lull, the Battle of the Banks for home loan market share is about to heat up again – to the benefit of homebuyers and the property market in general…

“This month’s decision by major lender Absa to once again start accepting applications for 100% loans from mortgage originators (Mortgage Plus) is, we believe, just the first salvo in the renewed battle”

“The move will no doubt prompt counter-measures from the other banks anxious to retain and gain top quality clients, and shrewd consumers will be the real winners.”

There will no doubt be many people, he says, who believe this scenario is wishful thinking on his part, “but even now, most lenders are already offering bonds of up to 100% to their own existing clients in good standing – and bonds of 90% on average to new clients – despite their stated determination just a few months ago to insist that every potential borrower pay a sizeable deposit.

“What is more, I am not suggesting that the banks will immediately relax their lending criteria. Bond applicants will still need to have excellent credit records, low debt loads and good employment prospects in order to be approved – just now perhaps they won’t need to have such a large sum of cash on hand to pay a deposit and cover transfer costs.”

Prinsloo says that in due course – and if inflation tails down later this year as expected – the banks will probably also become more negotiable once again on interest rates.

“Meanwhile, bond applicants can at the very least expect higher levels of service and faster response times, as banks increasingly relearn that home loan borrowers are very often the most loyal consumers of their other, very profitable, banking products and services – and not just a high-risk nuisance as they have often been viewed in recent years.”

From an industry point of view, he says, the results of this shift in attitude will be an increase in the number of loans granted, and a decrease in the number of “repeat” sales for estate agents. “Indeed, originators are already reporting an increase in volumes of loans being approved over the past few weeks, and that will inexorably lead to surplus stock being absorbed and home prices starting to show real increases. In short, it will open the way to the proper recovery of the market over the next two to three years.”

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