Deposits still key for prospective Owners in bond application process

Although 100% home loans are being approved by banks in select cases, potential property owners are advised to save for mortgage deposits, due to the numerous economic benefits for prospective home owners in the long-term.

This is according to Morne Prinsloo, one of South Africa’s leading bond originators, who says that on average 36.5% of applications for 100% bonds were granted by the banks during March 2011. “This is in comparison to the 48.33% of bonds that were granted with a 10 – 20% deposit during the same period.”

Prinsloo says that deposits offer both long and short-term benefits for potential home buyers. “Although the current property cycle is seen as a buyer’s market with many good investment opportunities for potential home owners, the current economic climate has caused financial institutions to be risk averse with stringent credit criteria and lending policies. It is therefore more difficult for consumers to lending policies in this environment.”

He says that banks often look favourably at buyers with a deposit and will be more open to negotiate a competitive interest rate on a home loan, as a result of the reduced risk to the bank. “Besides improving your chances of getting your home loan approved, a bigger deposit could result in a more favourable bond rate that will save you in interest over the term of the loan. As a home loan is paid back over a long period, generally between 20 and 25 years, even a small deduction in the interest rate on your bond, can save you thousands of Rands in interest payments over time.”

He says that having a deposit available will also improve the buyer’s chance of securing the purchase and speeding the transaction up. “Properties on the market are currently taking longer to sell. A deposit will strengthen the buyer’s negotiating power with the seller because of the improved chance of securing finance.

“Some sellers are also more willing to accept an offer if the buyer has a deposit, as there is a higher likelihood that they will complete the sale.”

He says that consumers looking to purchase property in the future should be saving towards deposits by putting a certain amount away each month. “First time buyers are encouraged to start saving for a deposit as early in their working careers as possible. As time goes by, interest will accumulate and assist towards securing home loan finance. It is recommended that applicants should try and secure at least a 10% deposit towards the purchase of a property, but banks will however look at any deposit from 5% up as favourable.”

Prinsloo says that consumers that don’t have cash or immediate access to funds can investigate alternative sources such as personal loans or deposit guarantees – an insurance policy specifically designed to assist potential home buyers to secure a deposit.

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

www.mortgagepluscc.co.za

The economic downturn brought an end to the double digit growth the property market experienced over the past few years. While it might not be as easy to make a quick buck as a few years ago, buying a property is still a good long-term investment. Investing in property, like investing in shares, is the best way to make sure your money beats the eroding effect of inflation in the long run.

It is important to note that when you rent out a property to a tenant, the Receiver of Revenue will consider the rent received as income and it will be included as “gross income” on your tax form. Gross income is usually a basic form of income like a salary. Do not omit your rental income from your tax form – the taxman can easily pick up undeclared rental income by contacting the deeds office.

On the positive side, you will be allowed to deduct expenses incurred in order to generate rental income from the amount you receive as income. This will include expenses like water and electricity (if you pay the bill), rates and taxes, insurance, agent fees, body corporate levies and certain household expenses. It might be a good idea to stipulate these expenses in the rental contract as this will indicate the expenses were incurred as part of the lease. Always keep invoices and statements in a safe place – the South African Revenue Service require that you keep these records for five years.

While the taxman considers repairs to your investment property as tax deductible expenses, improvements are considered of a capital nature and will therefore not be tax deductible. The general rule is that if the expense is incurred to restore the property to its original condition, it will be tax deductible. Expenses incurred to upgrade your home, will not be deductible.

Something that you might not be aware of is that if your investment property is covered by a bond, your interest payments to the bank will also be tax deductible. The capital part of your payment may not be subtracted though. Your bank will be able to supply you with an amortisation table that will indicate which part of your installment is interest on the bond.

By choosing Mortgage Plus for a loan, you will get professional advice 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