Growing availability of credit may help the residential housing market to regain some momentum from mid-year, but affordability and lack of confidence remain the two major stumbling blocks.

In spite of increased sales, improved buyer activity and further relaxed credit criteria by the banks, the residential property market still has one major hang-up — house prices remain in limbo, with very little exception. After peaking around April last year, deceleration followed and, according to the latest Rode’s Report, prices in January, on a national basis, were down by roughly one percent on the same month a year earlier.

The reasons are fairly straight forward; lack of confidence, job insecurity, fears of upward pressure on household expenses and the threat of higher interest rates. Hardly an environment for a major capital investment…

We have had a minor recovery in the market over the first five months of this year, but it has been too mild to make a significant impact on house price growth.

Buyers with cash and access to funds are active, looking for bargains. The May First National Bank House Price Index reveals a very slight acceleration in price growth from 1.2 percent year-on-year in February to 2.1 percent in May. But if one adjusts this average house price index with the consumer price index (CPI) real house price growth is around -2.5 percent. But again, this is a national average — there are pockets of sunshine amidst the gloom. Some industry analysts suggest that the negative growth trend will reverse shortly after mid-year.

It is a classic case of supply exceeding demand and the mini-recovery may well have a lot to do with the enjoyable summer months. The benefits emanating from the interest rate cuts since mid-2008 have waned and First National Bank’s property strategist John Loos warns: “This reflects the very weak financial and debt position of the household sector following the 2008/09 recession. If the residential market cannot achieve respectable house price growth after such a huge interest rate stimulus a period of house price decline would be the likely outcome of a possible phase of interest rate hiking or of slowing economic growth, or both.”

Fortunately, the outlook for economic growth looks brighter following recent indicators. First quarter GDP figures show a marked improvement in annualised growth to 4.8 percent, which is well ahead of the general expectation. The big question now is whether this growth can be maintained. The first quarter figures are worth analysing; the trade sectors showed positive growth, led by retail and finance and business services. Underperformance came from agriculture, construction and mining, while manufacturing produced an excellent performance, the latter being boosted by basic iron and steel as well as oil refining.

Business indicators tend to correlate well with residential property demand, so the upside in GDP is positive for the market.

Increased willingness by the mortgage bankers to lend should help the market in coming months. According to Saul Geffen, there has been a significant relaxation in deposit requirements, which opens up a much broader homebuyer base.

Other positive news is that the banks’ initial decline ratio is 8.7 percent lower year-on-year at 45.4 percent, while the effective approval ratio has increased significantly from 57.3 percent in April last year to 64.4 percent.

Geffen says that strong April approval rates build on recent record numbers recorded in March, when approval figure was the highest value of approved home loans since October 2008.

According to Standard Bank, mortgages with values between R350 000 and R700 000 comprise the largest share of the market. On the other hand, the bank states: “The proportion of mortgage loans granted attributable to the highest category of income earners recorded the highest annualised growth rate of any income category. In addition, the average size of mortgage loans applied for has seen a steady increase.”

Another indicator is our currency. The strong rand has its detractors, especially those in the export sector. But if the rand wasn’t strong, the effect of oil now hovering around US$107 per barrel would be severe. So despite some rise in inflation it is far from a foregone conclusion that interest rate hiking will take place this year.

Another positive indicator, closer to the residential property market, is the growth in private sector credit extension (PSCE) in the first four months of the year. The two biggest components, mortgage advances and other loans and advances (corporate credit demand), continue to drive overall growth. Instalments sales also rose in spite of the plethora of public holidays. Total credit extended to households remained at a relatively healthy pace.

At present we are just hanging in…

Please contact us if you require any further information or would like to apply for finance:

Complete this short form online

011.327.4489 / 0861 1111 93

morne@mortgagepluscc.co.za

www.mortgagepluscc.co.za

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