While the effects of the recession have influenced investors, particularly in the buy-to-let segment of the property market, owning a property is still a sound investment that will pay dividends over the long term.

So says Adrian Goslett, and adds that while the buy-to-let market has remained weak due to the current economic climate, the rental market has remained strong as many consumers are battling with high debt-to-disposable-income ratios and therefore are unable to save up for a deposit or secure mortgage finance.

It is expected that these market conditions will underpin the recovery in the buy-to-let market in the future. In the mean time, he says investors are taking stock of what they have and what they can afford and where they stand with their current investments.

Forthose who have decided to sell their buy-to-let property for whatever reason, Goslett warns that there are a number of considerations that need to be taken into account, especially if there is a lease agreement in place and a tenant occupying the property that the investor plans to sell. This is because legally, the lease agreement takes precedence over a sale agreement.

The best course of action in this situation, says Goslett, would be to notify your tenant of your intent to sell the property as soon as you have made the decision. “The tenant will need to work with you to showcase the property to any prospective buyers and the tenant also has first right of refusal to purchase the property. This means that as the landlord and property owner, you must notify the tenant of any offers on the property and they must be allowed the opportunity to match or better the offer.”

However, if the tenant does not want to purchase the property, they are entitled to remain in the property until the lease agreement expires, despite the sale of the property. In essence, Goslett says that when a rental property is sold and transferred into the new owner’s name, the new owner is not permitted to move into the property until the tenant’s lease has expired and they have moved out.

“But should the new owner have bought the property as an investment and not as a primary residence, the purchaser will then have the option to take over the role of landlord from the seller as soon as the transfer of the property has been registered.”

At the end of the day, Goslett says that if investors are in the position to hold onto their buy-to-let property, they should do so, as the returns from the rental yield and the capital gains over a longer period of time will make holding onto the investment a worthwhile decision in the long run.

He explains that even though tenants have enjoyed flat to relatively low rental increases over the last three years due to an oversupply of stock, the rental market is shifting to favour landlords more than tenants. According to TPN Credit Bureaux, due to a variety of factors there are now more tenants than stock, especially in the low to mid-priced properties, which allows property managers and landlords to be more choosey when placing tenants at their preferred prices.

“This means that you are highly likely to be able to secure a high quality tenant – should you follow sound practice of properly qualifying your tenants – for your buy-to-let investment at a rental return that works for both the tenant and the landlord,” Goslett concludes.

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

How much can I borrow for a mortgage?

One of the first questions 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 – 011.327 .4489

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

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.

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