Home Loan News : Banks offer Home Loan advice during tough times

The current climate of high interest rates, and rising food and petrol prices is driving up the average cost of living in South Africa.
In response to this the four major Banks – ABSA, Standard, FNB and Nedbank – have come out unanimously agreeing that homeowners should look to consolidate debts into one low interest account.

The easiest way to lower your monthly expenses is to consolidate all your high interest [short term] debts such as Personal Loans, Credit Cards and Car Loans into one low interest account – your home loan.

Gavin Opperman of ABSA Home Loans says: “Consolidating debt into a single loan provides our customers with a single, affordable debt repayment on a monthly basis.”

The interest charged on your Home Loan account is about 10.5 %, far less than your credit cards which is often as high as 23%.

[If your home loan interest rate is not 13.5% or lower – click here to get a better rate]

The other advantage that debt consolidation offers is an Extended Loan Term, which lowers your total month expenses. Although you’ll be increasing your monthly cash flow, extending the loan term would mean paying more interest.

Speaking to the Standard Bank Home Loans product director Shaheen Adam said although debt consolidation made sense, ideally consumers needed to be frugal with their expenditures and should try to pay off short- term debt such as credit card repayments sooner, even after consolidation, to benefit from lower interest rates.

John Loos of FNB Home Loans said FNB agreed that extending short-term debt into a longer term was not always good, but current economic conditions necessitated people looking into the consolidating option.

And, Nedbank Home Loans have setup a debt counselling department to assist with credit restructuring occurs and make debt more affordable to their clients.

Please go to www.mortgagepluscc.co.za for more home loan options.

When one takes a bird’s eye view of the affordable property market, a supply and demand mismatch is evident with levels of consumer interest hampered above the R3000 per month mark.

Overall the demand for housing in the affordable property sector is huge, but access to finance and associated costs are driving consumers to rent rather than buy.

There are clear bands of affordability in terms of monthly rental or bond repayment levels.  There are no current vacancies for the small and cheaper units, but the larger units priced on average from R2800 to R3200, depending on their size and whether furnished or not, are not getting rented as fast as the cheaper smaller units. These units are also renting well but the cheaper units are flying off the shelf like hot cakes.

There is huge interest from potential buyers in inner city Johannesburg.

Unit prices average R350 000 in downtown areas, but accessing end user finance is still a challenge for this market. Affordability becomes a problem for units priced above R450 000 and our research shows unit sales above R500 000 are very slow.

I H S partners with developers in the provision of developers by injecting equity capital in return for a shareholding. It is already a partner in numerous projects, having invested about R500-million of its much larger South African Workforce Housing Fund.  This investment has financed the creation of 17 000 units of new or renovated units.  IHS expects to have doubled its investment levels to around R1-billion by next year.

Among its current projects are a partnership with AFHCO to convert the old Greatermans building in downtown Johannesburg into over 400 rental units. Another project is with the Brian Falconer Property Group to develop 2 400 new homes near Carnival City, a third with Calgro M3 Holdings to develop some 6 400 homes in Fleurhof south of Johannesburg and a forth with the Aengus Group to refurbish 1 700 homes in the inner city Johannesburg area.  And there are a number of additional projects in the pipeline including a large public private sector partnership in Soweto.

Defaults in rental payments are relatively low across the board and rental housing demand and rental inflation have not been negatively impacted despite the worldwide recession. But, unemployment and the fear of unemployment was dampening the enthusiasm of both prospective buyers and mortgage financers. 

We remain very positive about South Africa. The 2010 FIFA World Cup exuberance and the worldwide recovery – which will hopefully be more apparent in the new year – is fuelling the bounce back in the overall property market.

But, in the affordable sector, there is an important balancing act that needs to be managed. On the one hand we have a massive opportunity in terms of the demand for homes and on the other we have the threat of banks’ funding drying up for both end-user  and development finance. 

And although interest rates are at historic lows, only limited stock in the affordable price band is currently being constructed.

Pent-up demand coupled with current low interest rate levels have made existing unit stocks more affordable and attractive, but the lack of new stock is driving up the price.

The constraining factor all round remains that of end-user finance.

Mortgage providers have made their credit criteria more exacting and have, until very recently, required large deposits from households that conventionally have little or no savings. In recent weeks the mortgage supply appears to have loosened up a bit, but it is still constrained.

The time has come for government to encourage financial institutions to introduce fixed rate mortgages for families that qualify at current low interest rates.

These borrowers might not be able to sustain a 3% or larger increase when interest rates start climbing again and this is preventing them from taking the plunge now while rates are relatively low.

Fixed rates or a cap on how high interest rates can go are critical for households with less disposable income. These households are most negatively impacted on when interest rates increase and this inevitably leads to foreclosure and bank lending being withdrawn and in return impacts on the ability of developers to produce stock.

This will make affordable housing remain in a boom-bust cycle instead of a more robust sustainable pattern.

To apply for your Affordable Mortgage Loan please go to www.mortgagepluscc.co.za or call us on (011)327-4489