Foreign Buyers and Home Loans in South Africa
An increasing number of foreign buyers, also known as non-residents, have been buying property in South Africa over the last number of years. South Africa is seen as a sought-after investment opportunity by many foreigners as it offers top investment returns in comparison with cities all over the world.

Foreign buyers can obtain home loans in South Africa, subject to certain conditions. South Africa’s deeds registration system has a reputation of being one of the best in the world.

Who are classified as foreign buyers?
The following buyers are classified as non-residents when buying property in South Africa:

1. Natural persons whose normal place of residence falls outside the common monetary area of South Africa. Also companies or other legal entities registered outside the South African common monetary area.

2. A South African resident who has lived overseas for more than five years is also classified as a non-resident if he/she wants to obtain finance in South Africa to buy property. This is irrespective of whether the person has emigrated or not.

3. Temporary residents/foreign naturals can apply for local home loans and they are not subjected to the restrictions placed on other non-residents. They are assessed on the same basis as South African residents. However, should they leave the country the non-resident rulings will come into effect and they will have to adjust their home loans accordingly.

4. South African residents who work overseas can qualify for home loans in South Africa, usually for a 80% maximum loan. You need to prove that you are only living overseas temporarily and plan to return to South Africa. If you have applied for emigration or surrendered your permanent residence status you will fall in the non-resident category and those conditions will become applicable. Estate agents have reported an increase in interest by young people who falls within this category and who which to secure their future in South Africa when they return.

The conditions applicable to foreign buyers:
1. The maximum purchase price of property is unlimited.

2. The maximum home loan a foreign buyer will qualify for is 50% of the purchase price of the property. If a non-resident wants to buy a property of R1 000 000, he will qualify for a home loan of R500 000. The approval of the loan will be subject to the lending criteria of the bank where the application is made. This will include the declaration of all assets and liabilities, proof of income and a clear credit record. The balance of R500 000 must be brought into South Africa from his overseas funds.

3. All non-resident transactions, including the home-loan finance applications are subject to foreign exchange approval by the Reserve Bank of South Africa.

4. The foreign applicant does not have to open a banking account in South Africa and can make his monthly payments directly from his overseas account. Some banks may insist on the opening of a local account.

5. Foreign exchange rulings can become rather complicated and all banks have special foreign exchange departments to deal with the technicalities involved.

6. If the foreign applicant is a company or other legal entity, certain other conditions also come into play; for example the appointment of a South African resident public officer who would act on behalf of the company.

7. Capital Gains Tax will be payable on the sale of the property. It is payable in the year the sale takes place and the non-resident will have to apply for registration as a South African taxpayer for the purpose of paying the Capital Gains Tax.

8. Should the foreign buyer decide to rent out his property the rental earned will be subject to ordinary South African income tax and the non-resident must register as a South African tax payer. This also applies if the property is bought through a company.

9. Loans to foreign buyers will have a maximum term of 20 years (not 30.)

Parts of the Western Cape are particularly popular with buyers from European countries, specifically from Germany, the Netherlands and the United Kingdom. They do not only buy for investment but many exchange their winter months for sunny South Africa, they have bought into the South African lifestyle.

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To 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
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Email: morne@mortgagepluscc.co.za

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There’s never been a better time to buy property!

This may take you by surprise – especially given how often you’ll hear differently in a week – but I couldn’t be more determined. Here’s why…

*** Firstly, property prices are incredibly low right now. According to Absa’s House Price Index, in real terms, “prices have dropped to levels last seen in early 2006”.

*** Secondly, thanks to the recent spout of interest rate cuts, prime is now only at 10%. That’s the lowest it’s been since October 2007. On a R1 million bond, you’re saving a whopping R3,216.92 each month compared to eight months ago when prime was at 15.5%.

Despite this, it’s become harder and more expensive to get a bank to approve your bond application. Back when the property market was booming, banks would happily give you a 100% home loan, regardless of the property value.

These days, you can count yourself lucky if the bank only asks for a 10% deposit. Most of them now demand anything between 10% and 30%. Even worse, they’re only willing to give you a maximum loan of 90% of the value of the house. This makes things tough for the prospective buyer and it’s why I’m going to share my top five tips to getting the best home loan out there.

Tip #1: Start planning 6 months in advance
If you’re thinking about buying a new house, do the work upfront. Approach your Mortgage Plus. Find out how much they’re willing to lend you and ask them to pre-approve your bond.

According to home loan financier, Mortgage Plus, “getting yourself pre-qualified before putting in an Offer to Purchase should be the first step you take. The National Credit Act stipulates that monthly deductions, e.g. income tax, monthly living expenses and debt need to be taken into account.” Just remember, pre-approval is only valid for 90 days. So be ready to act quickly.

Tip #2: Keep an eye on your credit score
I can’t stress enough how important your credit rating is. It shows that you take your debt seriously. And it affects the bond rates your bank is likely to give you. According to experts, the best rates tend to go to those with a credit score of 720 or higher; who have been with the same employer for at least two years; and have money for a deposit. So if you’re thinking of buying a house, request a free credit rating report at Itc. If your credit rating is less than ideal, work on raising it before you apply for a loan.

Tip#3: Shop around
According to www.propertymax.co.za , a “30 year loan is your best choice if you’re looking for a long-term stable loan. It’s usually the safest home loan you can get.” By stretching the repayment term to a 30 year bond you can bring down your monthly bond repayments. A longer home loan repayment term will improve affordability and free up your monthly cash flow. But it’s important to know that the longer the repayment term, the more interest you’ll pay. Remember this when you’re shopping around.

You’re likely to get a better rate if you bank with the loan provider. For example, a Standard Bank customer will get a 95% loan on a house worth R1 million. But a non-Standard Bank customer may only get a 75% loan. This isn’t guaranteed though… so shop around to make sure your bank’s giving you the very best rate.

Tip #4: Limit your credit applications
Your level of debt can affect the amount you qualify for. So think twice about applying for any other lines of credit if you’re applying for a home loan. The bank will just get the wrong impression of you. They’ll think you’re the type of person who shops ‘till they drop. It might compel lenders to turn you down.

Tip #5: Give a good down payment
The higher your deposit, the less you’ll need to borrow from the bank. And ultimately, the more you’ll save on interest. So if you want to keep your debt to the bare minimum, add extra cash to your down payment. If that’s not an option, try to pay a little extra (even if it’s just a few hundred rand) into your bond every month. You’ll soon see the benefits.

Getting the best loan, all comes down to that age old Scout mantra: “Be prepared!”

Here’s to your financial freedom,

CONTACT US
For more assistance with regards to Applying for Home Loan Finance .
Email: morne@mortgagepluscc.co.za
Ph: 011.327.4489
or Complete This Online Form

If you want to buy property, don’t dally. The present favourable buyers’ market is not going to remain favourable forever. In fact, if the property, home loan  and banking industry experts are correct, the tipping point will be reached soon and when it does, the upswing could be breathtakingly quick.

Projections done by Absa Home Loans indicate that the price of residential property could increase by as much as 60% between the end of 2010 and 2014. This means that a 220m² R950 000 141m² house is likely to cost around R1.5 million in six years time.

But, there is a conundrum to solve. Although the current adverse property market conditions may have served to make your dream home less expensive, the prevailing economic conditions have made the home loan with which to fund your dream, more difficult to secure.

Fortunately, more difficult does not mean impossible. Here are five home loan tips that could prove to be of value if you decide to strike while the iron is hot.

Become credit fit: The National Credit Act made it possible for all consumers to request a free copy of their credit report from the credit bureaus each and every year. Your credit report is accorded a significant weighting during the evaluation of your home loan application: it is one of the main factors that influences whether you qualify for credit or not; it affects the amount you qualify for; and it determines the interest rate you stand to pay.

For this reason, you may want to see your credit report before the bank does. Go through every last detail with a fine tooth comb. Check whether there are items that adversely affect your rating, and be on the lookout for incorrect records. If there is anything untoward that should be amended, write to the credit bureau explaining why the changes need to be made. Remember to submit supporting documentation if you have any.

If the credit bureau in question doesn’t respond or unreasonably declines your request, you can approach the credit ombudsman for mediation. This may seem like quite a tedious undertaking, but it certainly is well worth the effort in the end.

Increase your disposable income: The criteria for whether or not you can afford a home loan have changed. The banks now consider your disposable income when they calculate the size of home loan you qualify for.

Your disposable income, which is the amount of money you have left after meeting your financial obligations every month, can be increased if you give it some thought. You could speed up the repayment of your personal loans, settle some of your other small debts, shop around to save on your insurance payments and buy a cheaper car.

For every R1 300 you save on your monthly financial obligations, you will increase your home loan spending power by a full R100 000.

Work with a mortgage originator: Securing the services of a mortgage originator is a much better idea than taking a DIY approach. The mortgage originator will look at your personal set of circumstances and be able to tell you whether you are likely to qualify for a home loan and, if you do, how much you could probably buy for.

Working with a mortgage originator improves your chances for success: They understand the idiosyncrasies of the various banks, know which paperwork to submit and how to motivate your application. Once you are approved, they will negotiate the best possible interest rates and help you through the process until your home loan is finally registered. The banks, and not you, pay for the services rendered by mortgage originators.

Obtain a pre-approval certificate: If you want to avoid disappointment, you can ask your mortgage originator to apply for a pre-approval certificate from one or more of the banks. The pre-approval certificate is an in-principle decision made by the bank to finance your purchase, and is usually subject to their valuation of the property you decide to buy.

Don’t bite off more than you can chew: Your home loan is not the only additional monthly expense you will face when buying a home. You will also have to pay rates and taxes, homeowners’ insurance and, if your existing life cover is insufficient, additional life insurance premiums. Be sure to budget for these.

You would do well to leave some headroom for further interest rate increases. You need to be able to cope with at least a further 2%, just to be on the safe side. If you want to have the peace of mind knowing what your home loan will cost for the next 18 to 24 months, consider a fixed interest rate rather than a variable one.

And remember, the journey does not end once you crack the nod from a bank. It continues and, considering that it could last for 20 years or more, becoming knowledgeable about home loans is not a bad idea.

Make a point of reading up on how you could save on the interest you pay and how you could reduce the repayment term. Also gain a clear understanding of how you should use your home loan for big ticket purchases and as a debt consolidation instrument.

Finally, remember that the mortgage industry is constantly changing, and that it is a very good practice to shop around from time to time to ensure that you are still enjoying the best possible home loan deal from your current bank. For more info go to www.mortgagepluscc.co.za or call us on 011.327.4489