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Earn R15 000 or less a month, looking to buy a house? 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 percent 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 percent 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 percent (LTV)).
Standard Bank now allows LTVs of 100 percent (up from 90-95 percent) 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 percent 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 percent for new home loans, this was driven mainly by expected declines in house prices, the deposit requirement has now been reduced to 0 – 10 percent, 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 percent of the purchase price of their new homes. In general, though, it continues to believe that putting down a 5 – 10 percent 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 percent 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.
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
Most of the mistakes made when purchasing a property often result in problems that are hard to rectify. To ensure that you don’t have to life with the consequences of your own bad judgement, look out for these common mistakes when purchasing property:
Mistake #1: Grabbing the First Loan You are Offered
Shop around until you’ve found the best deal and talk to professionals, friends and/or real estate agent for referrals. Make sure you get all your quotes on the same day at around the same time, as interest rates might differ from day to day.
Mistake #2: Getting the Location Wrong
Location is everything and you don’t want to go wrong here. Once again, consider all your needs such as the area’s proximity to your place of work, public transport, schools etc. and make sure you pick the area for the right reasons. Also look at future development in the area to ensure that you investment is secure.
Mistake #3: Not Using the Services of a Real Estate Agent
To refuse the services of an experienced agent is a mistake that a lot of buyers make. They forget that an agent is used to handling transactions and negotiations and has handy knowledge of property prices in the area. Good agents have the ability to keep things in perspective and help you to be rational when things get too stressful.
Mistake #4: Getting the Price Wrong
Your agent will assist you in setting the right price by among other things, comparing it to the house prices in the area. This once again stresses the importance of working with an agent.
Mistake #5: Buying Beyond Your Limits
You will always find buyers purchasing a property that leaves them without any disposable income, as they are unable to deal with the monthly down payment as well as other costs like insurance, property tax etc. Avoid this common mistake by carefully calculating how much home you can afford. Choose a maximum price and stick to it.
Mistake #6: Being Overhasty
There are a lot of emotions involved in purchasing a home, which can lead to buyers jumping into a deal prematurely. Be prepared to spend a lot of time house hunting to avoid disappointment.
Mistake #7: Passing on the Inspection
As a buyer you might feel that you are qualified enough to sniff out any problems. Unfortunately this can cost you dearly. Be smart and get a qualified property inspector to thoroughly scrutinise the property before you buy it.
Mistake #8: Over Spending Before the Deal is Done
Taking on debt before purchasing a property might mean that you no longer qualify for the initial bond. Rather wait till after the contract is signed before you start buying new furniture and other essentials for the new home.
Mistake #9: Not Reading the Contract
Property contracts can be confusing and hard to grasp, but it is essential that you know what you are committing yourself to. Make sure you understand all terms and conditions and ask for advice if you are unsure of anything. Never just sign on the dotted line.
Mistake #10: Not Budgeting for Closing Costs
Remember to budget for closing cost (attorney fees, recording fees, survey fees, brokerage commission etc.) and remember that you will always have hidden cost, whether it is interest rate hikes or personal financial requirements.
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
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