Occupational rent – are you covered?

Reading the fine print and ensuring that every eventuality is covered in an agreement of sale is one of the most crucial aspects of buying or selling property.

This is the advice given by Adrian Goslett, the CEO of RE/MAX of Southern Africa who says that according to the laws governing property sales in South Africa, everything has to be reduced to writing and anyone who wants to conclude a sale without any complications should bear this in mind before signing any agreement.

“Although a sales contract normally has a section discussing occupational rent, many buyers and sellers do not realise its importance,” he says.

Goslett explains that essentially, this clause is intended to protect both parties as it covers the seller when the buyer moves into the premises before transfer has taken place, or the buyer should the seller stay in the property after it has been transferred into the buyer’s name. The clause should clearly state how much occupational rental must be paid each month.

While a buyer may have no intention of moving into a property before it is registered in his/her name, situations may arise where early occupation has to take place. Goslett says that delays at the Deeds Office and problems with obtaining rates clearance certificates are just two of the factors that may delay the transaction.

Likewise, a seller who initially didn’t plan to move out before the transaction has been completed may have to leave a property simply because they didn’t factor delays in transfer into the equation, or they might need to stay on for longer for a number of reasons.

Although frustrating, those who have foreseen such problems are in a far better position to deal with them than those who have simply chosen to ignore the occupational rent clause.

Both sellers and buyers, says Goslett, who do not ensure that the required occupational rent amount is stipulated in the agreement of sale leave themselves wide open. “Buyers do not call the shots in this area and the seller needs to ensure that the amount of occupational rental reflected in the sales contract covers the actual bond repayments that he has to continue making until the sale has gone through.”

On the other hand, the seller cannot be unreasonable in these cases by demanding a figure well in excess of the market-related value of the property and the bond amount owing.

“It is imperative for the buyer and seller to agree upon a figure that is fair to both parties. The main objective of any sales agreement is to clearly set out the intention of the parties so that there can no argument later on.”

Generally speaking it is normal practice for an agent to insert an amount that ensures that the bond amount that the seller is paying is fully covered. However, some agents put in an amount equal to 1% of the purchase price. This can result in seller losing money in the event that he is servicing a high bond.

Goslett warns that it is vital for both the buyer and seller to read the sales contract in its entirety, thereby ensuring that every eventuality is understood and taken care of adequately. “Buying and selling property is an emotional time for everyone and adopting a ‘things will work out for the best’ approach could end up in conflict, costing money and souring what should be one of the most exciting moments of your life.”

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

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011.327.4489 / 0861 1111 93

morne@mortgagepluscc.co.za

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How much can I borrow for a mortgage?
One of the first question everyone asks when they are thinking of buying a property is ‘how much can I borrow?’ This is not an exact science and all banks have methods to calculate affordability. Since the introduction of the National Credit Act this has become even more complicated. The most accurate method of establishing how much you are eligible to borrow is to contact a qualified mortgage broker.

Salary Multiples
A mortgage lender will lend you money based upon what they think you can afford to repay on a monthly basis. The calculation they used to use is broadly that 30% of your gross monthly income must be your maximum monthly mortgage repayment. Therefore if you earn R20,000 per month gross then your maximum repayments should be R7,000.

Under the National Credit Act, lenders now have to base your eligibility calculations on your monthly ‘disposable income’. To calculate this you need to take your gross income, less all the deductions like tax and UIF to get your Net income. They then calculate what your total monthly expenses are; groceries, car insurance etc, and finally they subtract all you month commitments to any existing debt you have such as credit card, vehicle finance, or loan repayments. The balance (if there is one) is your maximum monthly mortgage repayment.

The banks normally add in a ‘buffer’ for interest rate rises etc, so you may actually only qualify for 85% of this figure. You then need to work backward to get the actually bond amount these monthly payments will allow you to service.

A lender will look at your bank statements and your regular outgoings to check that the expenses you have declared are in line with your outgoings on your bank account. They also have access to the Credit Bureau’s information so they can check that the liabilities that you have declared are correct. If you run a tight ship with regard to your finances, you may be able to get a bigger mortgage than you would do under the traditional salary multiple guidelines. Conversely, if you’re already ‘maxed out’ with credit cards and personal loans, you may not get offered as much.

The National Credit Act (NCA) means lenders will be tightening their credit policy so as not to fall foul of the ‘reckless lending’ as laid out in the Act. This will not only mean that lenders will start using individuals net income for their calculations, but also they will look specifically at what other borrowings the applicant may have before they make a decisions on the applicants borrowing eligibility.

For a quick check to see how much you are eligible for please go to our mortgage calculators. The various lenders do vary in how much they will lend you depending on their individuals assessment of your risk.
Other income

Other Income
Lenders will take into account other income that you may have such as rental income, investment and dividends etc. Again, lenders do vary in how they view secondary income streams. Therefore you should always speak to your Mortgage Plus consultant to assess your full range of options.

As a rule of thumb lenders will take into account 50% of your rental income on a rental property. It is up to you as the borrower to prove this income. You must be able to show money going into your bank account and lease agreements. The longer the lease, the more they will value the rental income.

You can also take into account ‘contributions’ from other family members if they are living in your property. If a partner, or child is making a contribution to the ‘family finances’ then the banks will use it. Again, the onus is on you as the borrower to prove this.

Commission earner
If you are a commission earner the banks will take this into account. However, the best way to prove this to the bank is to provide six months payslips and calculate the average commission earnt.

Annual bonuses
These can also be taken into account but you will have to prove them with entries on your bank statements and letters from your employer.

Self-employed individuals
It is harder for banks to lend to self-employed individuals because it is often harder to prove the income. The better you manage your accounts (and the more accurately) the easier it is for the banks to lend to you. Proof of your income will have to be provided in the form of Audited Financial Statements, latest management accounts and six months bank statements, as well as a letter from your accountant verifying your income.

Partners / Spouse’s income
If you are purchasing with a partner or spouse then lenders will take their income into account.

Note: Remember that banks want to lend money. That is how they make money. The banks have come under considerable pressure since the introduction of the National Credit Act not to ‘lend recklessly’. Make it easy for a lender to grant you a loan by managing and recording your finances carefully.

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

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