With more than 40% of all home loan applications still being declined in December 2009, potential homeowners may still be finding it tough to obtain financing. However, the decline ratio is expected to fall as a result of the gradual improvement expected in the local property market in 2010.

Latest figures  show that 42% of home loan applications were ultimately rejected by banks in December 2009.

According to Rhys Dyer, the current decline rates are well above the effective 20% decline ratio experienced during the heady days of 2003 to 2006, a time of strong property market conditions.

“These decline rates were, however, prior to the introduction of the National Credit Act (NCA). Our view is that the introduction of the NCA has influenced decline rates on a structural basis and it is unlikely that we will see decline rates at these historic lows again. There is however significant scope for improvement from current levels with property market recovery over the short term.”

Dyer says lack of affordability still remains a key reason for high decline ratios.

“Affordability under the NCA is measured by net disposable income. Consumers need to show sufficient net income after tax, living expenses and the repayment of other debt to afford the bond repayment. With many consumers having been hit hard by the economic recession, and the increases in the cost of living they simply cannot meet these criteria.

“Many consumers are also recovering from an overhang of historic debt and a high percentage still have impaired credit records,” says Dyer.

Dyer says that because every bank applies different credit criteria in assessing a home loan, it is essential that consumers shop around and don’t merely accept the credit decision from only one institution. Almost a fifth of ooba’s home loan applications that were declined by one lender in December 2009 were accepted by another lender.

“Further to the credit criteria, there is also the issue of pricing. Pricing between banks remains a key reason to shop around. The rates being offered to the same client may vary from bank to bank.

He says that in the current environment, using a reputable bond originator is a useful way to improve the chances of a successful home loan application.

“Bond originators can assist in shopping around to the different banks and ensure that all the required information is obtained and correctly reflected before submission of the home loan. As each bank has differing requirements in terms of their application information, bond originators have developed systems to ensure that once the information is obtained from the customer it is systematically formatted to meet each bank’s application formats and requirements. This saves the consumer from having to go through a separate and time consuming application process with each bank.”

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Banks start to ease up with bond applications

WITH banks beginning to relax their lending policies, there is support for a revival in the property market and now is the time to apply for a bond.

There should be a much-improved chance of being approved for a loan on favourable terms. Banks are again offering 100 percent loans and the current lower interest rates make it a better time for consumers looking to buy.

Before you even apply for a loan, check whether the property is affordable.

Determining the right price range is an essential first step to avoid wasting time looking at unsuitable properties.

A property finance consultant will take you through the exercise of establishing what you can afford, taking into account your specific financial requirements.

Monthly repayment affordability is generally calculated at 25 to 30 percent of joint gross income, but other criteria, including existing debt commitments, may affect the size of the loan that the bank will grant.

Remember that the hidden costs (transfer and bond registration fees) usually have to be paid up front and add a sizeable amount to the cost.

One way to ensure that the loan you apply for will be granted is to get a prequalification. Companies such as Mortgage Plus will, at no cost, prequalify you for a certain bond amount, which takes the stress out of applying for a bond once you have decided on buying a property. Another positive factor is that buyers who are prequalified are in a much stronger position to negotiate with sellers.

Bond applications may be declined for several reasons: you may not be able to afford the monthly loan repayments, or may require a 100 percent loan that would push the repayments beyond your reach.

Another critical consideration is your credit profile. This includes your employment history and consumer bureau results, which provide a picture of your debt and payment history. If the bank considers you a good credit risk, it will assess the value of the property to be purchased.

If this, too, meets all the relevant criteria, the loan is usually granted. The mortgage originator also often motivates the merits of a particular loan application to the bank’s credit manager.

To improve your credit record, cancel out-of-date credit cards and ensure that you pay all instalments by the due date every month.

To help the bank determine its risk, you will have to provide personal information such as bank statements, salary slips, a statement of assets and liabilities, a statement of your monthly expenses and information on your credit history, including whether you have ever been insolvent.

An originator can ensure you have all the correct paper work to avoid unnecessary delays.

Mortgage originators shop around and negotiate the best deal for customers for free. Obtaining a preferential rate of just 0.1 percent below prime can make a big difference to monthly repayments. But a mortgage originator must take more than just the rate into account and will structure a package to suit an individual.

To structure a package to suit an individual needs please phone (011)327-4489 or go to www.mortgagepluscc.co.za