CAPE TOWN – Absa (JSE:ASA) recently made a big song and dance about its MyHome product, helping those households who earn less than R15 142 a month to buy a property by offering them a 110% bond, no deposit required and all bond costs included in the bond. Is it now the low-income bond market leader and what are the other banks offering in that sector?

A Standard Bank (JSE:SBK) spokesperson referred me to a release it sent out last year where the bank relaxed its credit restrictions, claiming it was the first to do so. The changes it made were specifically designed to benefit first-time entrants into the housing and general credit markets. They were not for the low-income bracket but aimed at those with a solid income but don’t necessarily have a sizeable deposit to put down.

Its Jump Start Bond allows first-time home owners to apply for a bond of up to R1m, to qualify a household needs a combined income of close to R30 000 and monthly repayments will be close to R10 000 a month.

As long as they use the residence they are buying as their primary residence they are able to qualify for a cost-inclusive 104% LTV (loan-to-value). The loan-to-value ratio expresses the amount of a first mortgage lien as a percentage of the total appraised value of real property. For eg, if a borrower wants R450 000 to purchase a house worth R500 000, the LTV ratio is R450 000/R500 000 or 90% (LTV)).

Standard Bank now allows LTVs of 100% (up from 90-95%) and it has started accepting low-risk non-cheque Standard Bank customers and low-risk non-Standard Bank customers for home loans.

Standards Bank’s Dream Start Bond is more suitable to low-income earners. It is aimed at those earning a single or joint income of between R1 500 and R6 000 a month, excluding housing subsidies or allowances.

First National Bank’s contribution to the low-income bond market is the Smart Bond. This is for applicants earning a monthly household income of R15 000 and below. Those applicants who qualify for the Smart Bond will be eligible for 100% bond finance, with no deposit required.

Nedbank (JSE: NED) also relaxed its lending criteria last year. Whereas for the previous year the bank required deposits of 10 – 20% for new home loans, this was driven mainly by expected declines in house prices, the deposit requirement has now been reduced to 0 – 10%, depending on the risk profile of the client. Clients also have the option to have a five-year fixed interest rate or a variable interest rate. Home-ownership education programme is provided to first time home buyers – for free and the minimum loan amount is R20 000.

For low-risk clients – both existing Nedbank clients and new clients it will lend up to 100% of the purchase price of their new homes. In general, though, it continues to believe that putting down a 5 – 10% deposit is good practice for both the client and the bank, and therefore will continue to encourage clients to do likewise.

While all banks do seem to cater for low-income earners it appears that Absa’s 110% offering is the most effective product targeted at these earners. The fact that borrowers who take advantage of the product receive the added benefit of an HIV/Aids voluntary counselling, testing and treatment programme seems to place the red branded bank as current market leaders in this sector. Absa has also sourced insurance so that should a client fall ill and be unable to work due to an Aids-related disease their home loan instalments will be covered.

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How to manage your credit score and buy property

Weak economic conditions, higher interest rates and the global credit crisis have forced banks to be far more picky about who they will lend money and less generous with their lending rates.

But Mary Jane Lefevre, said that before you apply for a home loan, there are steps you can take to improve your credit status and encourage lenders to look more favourably on your application.

“Even those who know that they have a good credit history should request a copy of their credit record from ITC and Experian (contact details for these can be found on the web) to ensure that all information held on you is both accurate and up to date,” says Lefevre. “You can also approach an origination company such as Mortgage Plus who will, with your written consent, provide you with your credit records.”

Be aware that each time your credit record is accessed; it affects your overall credit score at the bank. Therefore don’t allow everyone and anyone to access your credit record.

• Sever old relationships

When you apply for credit, it isn’t just your details the potential lender will scour. They will also check the credit history of your spouse (if you are married in Community of Property) or any co applicant or surety you may apply with. Joint bank accounts, if not conducted correctly could have an adverse affect on your application and if you are divorced or separated, make sure you are not linked to any debt or open credit facility with your ex.

• Cancel out of date credit cards

Many people switch credit cards frequently but fail to cancel old agreements even if they no longer use the credit or retail card, these lines of credit will still appear on your file, which can make lenders wary about the potential size of your total debt – some may fear that you will “max out” these cards and then struggle to meet repayments. If you don’t need the full credit limit given on a card, ask your lender to reduce it. The same applies to retail credit.

• Build a track record

Banks want to see that you have a record of managing credit sensibly. So if you are a first-time buyer consider taking out a credit card six months before making your bond application. Of course, you’ll need to make sure that you pay off the balance in full each month, and on time, to avoid interest payments and to show that you are diligent with managing your debt.  Also, make sure your income is deposited monthly into a bank account as the banks will ask for proof of income via your bank statements.

• Ensure details are the truth

Make sure that information you provide on applications is accurate and truthful. Inconsistencies can have a negative effect on your credit score and you must be able to prove any income that you have declared.

• Include additional information

Where necessary, add further information about previous credit problems. If such problems were after redundancy or divorce, for example, and your financial situation has since improved, you can add a note explaining this. Likewise, if you have been a victim of identity fraud in the past, make sure that any credit problems caused by this are removed from your file.  Always keep proof of paying up any arrear debt and rescind judgments.  Companies such as ooba can help through services such as oobaassist, which will assist you through the process of clearing any negative credit records.

• Before you put in an offer, get pre-qualified

Even if you only plan to buy a property in six months time, start talking to a reputable bond originator like Mortgage Plus who is able to help you with any potential problem as well as prequalifying you on income less expenses and deductions. Mortgage Plus Bond Originators will also have solutions to any potential problems facing you in a tougher credit environment.

To get pre-qualified – Click Here