Many home loan middlemen are keen to help you choose. Mortgage Plus investigate:

There’s a new finger in the pie. He is the mortgage broker, what you might call a loan ranger. In recent months more than one mortgage broking business has suddenly appeared, bringing a new dimension to home loan business in South Africa. Until now estate agents have usually played the part of middlemen between banks and the general public. Unless the buyer has insisted on using his own bank, the agent will introduce him to a bank of his own choice and receive a nominal 0.5% commission for his influence. The practice has always been regarded as eminently fair as the commission has been lawfully earned and virtually any bank will pay it to him, ruling out price-war competitiveness or forced marketing influences.

The Loan Ranger – the New Middleman

Is there really a need for another middleman? Has the role of the individual estate agent come to an end? It all depends on how mortgage broking will actually be conducted. There could be great benefits if the practice results in new home buyers having a direct link to all banks through brokers acting principally in the interests of the individual as happens in countries like the United Kingdom and Australia. There established businesses advertise directly to the public, offering them the service of a wide knowledge of each particular bank’s products. The client has a freedom of choice after being advised of the various options to decide which product and bank to eventually utilize. Laws have been passed ensuring transparency in each broking business including an obligation to always disclose the financial benefit the broker expects to receive. In short,all mortgage brokers in South Africa and these other countries are accountable at law to the public for their activities.

We are seeing the beginning of what is likely to become a permanent feature of local home loan business practice. Already, however, there are signs that government intervention may be necessary if local mortgage broking is to become the healthy institution it is elsewhere in the world. Similar laws will have to be passed to regulate the conduct of brokers to prevent unhealthy elements creeping in which are not going to be in the interests of the general public.

Features of New South African Mortgage Broking

The new brokers operating locally belong to two different types. The first follows the universal practice of public advertising seeking to canvass potential clients directly for their bond business. You can find their services easily on the Internet and they are very clearly projected. Potential customers are encouraged to enter into a deal with the broking agency which places very few restrictions on them. The actual agreements read more like an information chart of how they work rather than a contract binding the client to their services. In fact no commitment comes until the client agrees to the terms and conditions of the financial institution granting him the loan. The broker undertakes to obtain offers from each of its participating banks within 48 hours and, once the client has accepted one of them, it will arrange a meeting with the relevant staff of the bank to process the loan application.

If they follow the universal practice these brokers will disclose their financial reward for their services, namely 0.35% of the total amount of the loan finally granted. They should not restrict their clients from canvassing other banks at the same time. Are there any drawbacks? The obvious weakness is if your mortgage application is only restricted to a few banks. As a client, you should insist that all banks receive your loan application-or be given the reasons why some are excluded.

Forced Marketing – the Other Type of Mortgage Broking

Then there is the second type – mortgage brokers intervening between banks and estate agencies to ensure business is directed to banks of their choice. Here, however, the involvement is not as transparent as it should be. These new loan rangers generally transact their business without visibility to the buyer who may be totally unaware of their presence or interest. They do not generally advertise to the public at large but conclude private deals on their own terms. They canvass principals of large estate agencies, negotiating deals whereby all the agency’s business is to go to them and through their influence to specific banks. Here the home loan application will not necessarily be directed to the bank offering the best product but the one prepared to pay the biggest bucks. Cases are already known of banks being prepared to offer up – to 1 % commission to these mortgage brokers for bond business. That’s quite – a whack! On a loan of R500 000,00 the bank will be prepared to pay out no ‘- less than R5000,00 for its A new business!

This practice is detrimental to good personal business relationships. The fresh air of healthy A competitiveness gives I way to the polluted atmosphere of forced marketing. Individual l agents working for I these agencies are I deprived of any right to influence the ultimate direction of the loan – application. Their recommendation comes no longer from personal experience of the banks offering the best products and after-sales service but from compulsion to use the institutions offering the highest commission.

Which Bank – The One with the Best Product or Biggest Commission?

As you can see many agencies will, in future, be selling their home loan influence to the highest bidders. You can be sure those bidders may well be banks that cannot rely exclusively on the quality of their service and products to net them their business. You will do yourself a huge favour by asking your agent whether his or her agency has an agreement with a mortgage broking agency through which it earns substantial commissions for using specific banks.

Today home loan consultants employed by banks are generally more trained, visible and available than they were before. Services and skills have been sharpened. Commission, however, is another matter entirely. They spoil healthy competitiveness. Banks which attract business through extravagant commission payments are forcing the market against the more acceptable face of mortgage broking – transparent dealings with the public where individuals have complete freedom to consider a wide range of mortgage packages with the broker earning a reasonable commission (up to 0.5%) for his services.

The Estate Agents’ Code of Conduct

All estate agents are bound by the Code of Conduct issued by the Estate Agency Affairs Board. In its October 1999 issue of its regular publication “Agent” the Board has given a reminder to all agencies of their responsibilities to the public in a short article headed Mortgage Broking. Agents may not deliberately“steer” buyers to financial institutions of their own choice through any improper influence. No agent may recommend one bank’s products or services over another purely to earn a commission. Payments of commissions to agents in the traditional manner have again been endorsed as perfectly fair. No obligation rests on the agent to disclose to the buyer that he will be I remunerated for directing bond business a certain way but no undue influence may be used to achieve this end. The agent’s role, first and foremost, is to offer advice on the best services available and to allow each buyer plenty of room to compare the various packages offered by the different banks.

Directing home loan applications to specific banks through mortgage broking agencies purely because of a private deal guaranteeing high commission payments would appear to be the very thing the Code of Conduct defines as unprofessional conduct.

Clients, Customers and Professional Service

What can you do to avoid becoming a victim of forced marketing? You will need to maintain a lookout for loan sharks lurking in the shadows. Conduct your business directly with a fully accredited home loan advisor or Bond Originator for example Morne Prinsloo at Mortgage Plus cc. Getting to know them personally paves the way for a long-term harmonious relationship.

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

Foreign Buyers and Home Loans in South Africa
An increasing number of foreign buyers, also known as non-residents, have been buying property in South Africa over the last number of years. South Africa is seen as a sought-after investment opportunity by many foreigners as it offers top investment returns in comparison with cities all over the world.

Foreign buyers can obtain home loans in South Africa, subject to certain conditions. South Africa’s deeds registration system has a reputation of being one of the best in the world.

Who are classified as foreign buyers?
The following buyers are classified as non-residents when buying property in South Africa:

1. Natural persons whose normal place of residence falls outside the common monetary area of South Africa. Also companies or other legal entities registered outside the South African common monetary area.

2. A South African resident who has lived overseas for more than five years is also classified as a non-resident if he/she wants to obtain finance in South Africa to buy property. This is irrespective of whether the person has emigrated or not.

3. Temporary residents/foreign naturals can apply for local home loans and they are not subjected to the restrictions placed on other non-residents. They are assessed on the same basis as South African residents. However, should they leave the country the non-resident rulings will come into effect and they will have to adjust their home loans accordingly.

4. South African residents who work overseas can qualify for home loans in South Africa, usually for a 80% maximum loan. You need to prove that you are only living overseas temporarily and plan to return to South Africa. If you have applied for emigration or surrendered your permanent residence status you will fall in the non-resident category and those conditions will become applicable. Estate agents have reported an increase in interest by young people who falls within this category and who which to secure their future in South Africa when they return.

The conditions applicable to foreign buyers:
1. The maximum purchase price of property is unlimited.

2. The maximum home loan a foreign buyer will qualify for is 50% of the purchase price of the property. If a non-resident wants to buy a property of R1 000 000, he will qualify for a home loan of R500 000. The approval of the loan will be subject to the lending criteria of the bank where the application is made. This will include the declaration of all assets and liabilities, proof of income and a clear credit record. The balance of R500 000 must be brought into South Africa from his overseas funds.

3. All non-resident transactions, including the home-loan finance applications are subject to foreign exchange approval by the Reserve Bank of South Africa.

4. The foreign applicant does not have to open a banking account in South Africa and can make his monthly payments directly from his overseas account. Some banks may insist on the opening of a local account.

5. Foreign exchange rulings can become rather complicated and all banks have special foreign exchange departments to deal with the technicalities involved.

6. If the foreign applicant is a company or other legal entity, certain other conditions also come into play; for example the appointment of a South African resident public officer who would act on behalf of the company.

7. Capital Gains Tax will be payable on the sale of the property. It is payable in the year the sale takes place and the non-resident will have to apply for registration as a South African taxpayer for the purpose of paying the Capital Gains Tax.

8. Should the foreign buyer decide to rent out his property the rental earned will be subject to ordinary South African income tax and the non-resident must register as a South African tax payer. This also applies if the property is bought through a company.

9. Loans to foreign buyers will have a maximum term of 20 years (not 30.)

Parts of the Western Cape are particularly popular with buyers from European countries, specifically from Germany, the Netherlands and the United Kingdom. They do not only buy for investment but many exchange their winter months for sunny South Africa, they have bought into the South African lifestyle.

CONTACT US

To 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