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

How much can I borrow for a mortgage?
One of the first question everyone asks when they are thinking of buying a property is ‘how much can I borrow?’ This is not an exact science and all banks have methods to calculate affordability. Since the introduction of the National Credit Act this has become even more complicated. The most accurate method of establishing how much you are eligible to borrow is to contact a qualified mortgage broker.

Salary Multiples
A mortgage lender will lend you money based upon what they think you can afford to repay on a monthly basis. The calculation they used to use is broadly that 30% of your gross monthly income must be your maximum monthly mortgage repayment. Therefore if you earn R20,000 per month gross then your maximum repayments should be R7,000.

Under the National Credit Act, lenders now have to base your eligibility calculations on your monthly ‘disposable income’. To calculate this you need to take your gross income, less all the deductions like tax and UIF to get your Net income. They then calculate what your total monthly expenses are; groceries, car insurance etc, and finally they subtract all you month commitments to any existing debt you have such as credit card, vehicle finance, or loan repayments. The balance (if there is one) is your maximum monthly mortgage repayment.

The banks normally add in a ‘buffer’ for interest rate rises etc, so you may actually only qualify for 85% of this figure. You then need to work backward to get the actually bond amount these monthly payments will allow you to service.

A lender will look at your bank statements and your regular outgoings to check that the expenses you have declared are in line with your outgoings on your bank account. They also have access to the Credit Bureau’s information so they can check that the liabilities that you have declared are correct. If you run a tight ship with regard to your finances, you may be able to get a bigger mortgage than you would do under the traditional salary multiple guidelines. Conversely, if you’re already ‘maxed out’ with credit cards and personal loans, you may not get offered as much.

The National Credit Act (NCA) means lenders will be tightening their credit policy so as not to fall foul of the ‘reckless lending’ as laid out in the Act. This will not only mean that lenders will start using individuals net income for their calculations, but also they will look specifically at what other borrowings the applicant may have before they make a decisions on the applicants borrowing eligibility.

For a quick check to see how much you are eligible for please go to our mortgage calculators. The various lenders do vary in how much they will lend you depending on their individuals assessment of your risk.
Other income

Other Income
Lenders will take into account other income that you may have such as rental income, investment and dividends etc. Again, lenders do vary in how they view secondary income streams. Therefore you should always speak to your Mortgage Plus consultant to assess your full range of options.

As a rule of thumb lenders will take into account 50% of your rental income on a rental property. It is up to you as the borrower to prove this income. You must be able to show money going into your bank account and lease agreements. The longer the lease, the more they will value the rental income.

You can also take into account ‘contributions’ from other family members if they are living in your property. If a partner, or child is making a contribution to the ‘family finances’ then the banks will use it. Again, the onus is on you as the borrower to prove this.

Commission earner
If you are a commission earner the banks will take this into account. However, the best way to prove this to the bank is to provide six months payslips and calculate the average commission earnt.

Annual bonuses
These can also be taken into account but you will have to prove them with entries on your bank statements and letters from your employer.

Self-employed individuals
It is harder for banks to lend to self-employed individuals because it is often harder to prove the income. The better you manage your accounts (and the more accurately) the easier it is for the banks to lend to you. Proof of your income will have to be provided in the form of Audited Financial Statements, latest management accounts and six months bank statements, as well as a letter from your accountant verifying your income.

Partners / Spouse’s income
If you are purchasing with a partner or spouse then lenders will take their income into account.

Note: Remember that banks want to lend money. That is how they make money. The banks have come under considerable pressure since the introduction of the National Credit Act not to ‘lend recklessly’. Make it easy for a lender to grant you a loan by managing and recording your finances carefully.

By choosing Mortgage Plus for a loan, you will get that continual service 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

Demand for residential property has seen a “significant jump” in the first quarter of 2010. The latest FNB Residential Property Barometer survey shows a sharp 32.2% rise in demand over the corresponding quarter in 2009.

On a scale of one to ten the demand activity rating rose to 6.35 in the first quarter of 2010, from a rating of 5.68 in the first quarter of 2009. Other key parts of the survey point to further improvement in the residential property market, according to FNB.

The average time that a property remains in the market before being sold, has declined from 13 weeks and two days, to 12 weeks and four days. The percentage of sellers not achieving their asking price has also dropped from 89 percent to 76 percent from quarter to quarter.

Further there has been a turnaround in reasons for selling. Property owners selling “in order to downscale due to financial pressure” declined from 24% to 20%. This decline was more significant in the high-net worth market. In this band financial “downsizing” accounts for 15% of residential sales, while the figure was an estimated 20% and higher for middle and low income bands.

Positive demand figures were chiefly being driven by the primary house buying market. The buy-to-let and non-essential purchases segment returned the lowest demand activity rating at 5.57. Despite this, FNB has selected the luxury market as the “long-term pick” despite its current weakness in demand.

“This is because the market’s condition is not only determined by the state of its demand, but also by the state of its supply side, And from the various Barometer and other data the luxury market remains in the least oversupplied state most of the time,” says FNB Property Strategist John Loos.

The relative health of the luxury market boils down to two factors: the financial health of high net worth households relative to other households, and the lower availability of vacant prime land to develop new stock in the sector, thus reducing oversupply.

Other interesting figures to have emerged from the Property Barometer survey include:

• FNB estimates that the cumulative house price inflation for the luxury segment measured 429.5% over the past ten years, while the figure for the affordable segment is 240.6%. This puts paid to sentiment that the affordable housing sector, which has outperformed other sectors over the past few years, is necessarily the better investment.

“This perhaps demonstrates to property investors that they should not only look to segments where demand growth is high and new entrants to the segment are said to be abundant. Many luxury areas are often near to the country’s prime and well-established business nodes such as Sandton, or on the slopes of Table Mountain, on which there is limited vacant land supply,” concludes Loos.

He warns though that the tendency for luxury residential property to be close to business nodes puts pressure on lower income communities, who have to pay more for transport. Loos believes South Africa has to rise to the challenge of building more affordable housing close to business nodes; or new business nodes need to speed up migration to more affordable areas. 

Absa Property Analyst Jacques du Toit confirms that the residential property buying trends they are seeing correspond with FNB’s: “Although some of the investment markets, according to our calculations, especially along the coast, have actually started to improve in the past quarter, the performance even there is still not at a level where the primary markets are.”