PROPERTY FINANCE : What banks are looking for

The property market is slowly recovering and investors are scouting for deals. However, while the banks have started lending more than last year, it is still difficult to obtain finance in this market. Just three years ago credit was easy to come by. Everyone from retailers to micro-lenders were dishing out credit. When the world hit recession, the money dried up. The only applicants to be awarded finance were those who could show that they didn’t really need it. Furthermore, the finance that they did receive was expensive. While a discounted lending rate of prime less 2% was not something to get too excited about in 2006, just a year or two later, investors were lucky to receive any discount at all.

It is important to remember that bank managers are not investors. They seldom understand the principles of property investment- that is let the tenant pay the bond repayments while the investor enjoys the compounded income and capital growth. Therefore, the key to getting finance at a competitive rate, is to think like the bank manager. The investor who has built up equity in other properties may perceive oneself as less risky than an owner occupier by having the ability to sell a property if running into financial trouble. The bank manager however prefers financing a “less exposed” owner occupier who will cut back on other expenses if necessary to remain in his or her home.

According to renowned international investor Dolf de Roos, getting finance is all about psychology. Don’t ask the bank for finance, rather offer them the opportunity to finance your property. The key is confidence and understanding that the bank also stands to benefit from the transaction. The banks typically look at four main factors when assessing a finance application.

Capacity

The applicant’s ability to repay the loan is determined by their monthly income. As a rule, up to 25-30% of an applicant’s gross monthly income may be used in servicing all of their mortgage repayments. Usually only about 50% of rental income being derived will be added to the applicant’s salary. The bank will also assess the net income of applicants to ascertain whether there is enough income to service the bond after deducting all the applicant’s expenses. Self employed people are generally perceived as higher risk.

Character

The bank will do a full credit and employment check in determining whether the applicant can support the loan. Any negative listings will affect the applicant’s chances of getting credit even if the outstanding debt is very small. Too many previous applications for credit may also count against the applicant. The bank will also verify employment and may refuse credit to workers on contract.

Collateral

Many of the banks will offer an “approval in principle” to applicants meeting the above mentioned “capacity” and “character” requirements for the loan. The final approval will depend on the valuation performed on the property. While most banks are claiming to offer 100% loans, the more common maximum is a 95% loan to value offering. For investors, many of the banks are only lending up to 75% of the value of the property.

Conditions

The final factor affecting applicants is one in which they have very little control- the conditions in the market. The retail banking industry in South Africa is dominated by only four major players. While the big four were intent on increasing market share during the boom times, they are now intent on limiting bad debts. Remember, they are not investors and do not see the potential which the property market offers. All they see is unemployment and a softer economy. Give them a few years and 110% loans should be available yet again.

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

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011.327.4489 / 0861 1111 93

morne@mortgagepluscc.co.za

www.mortgagepluscc.co.za

Six tips when appointing an agent

Keeping a checklist of the ideal attributes of an estate agent is probably the last thing sellers think of when putting their houses on the market.

But it could prove decisive in successfully selling your house and having a pleasant experience to boot.

Speaking to a group of property developers from out of town recently, Anton du Plessis, CEO of Vineyard Estates, listed five “do and don’t” guidelines to be kept in mind when appointing an agent.

These, he said, are:

1. Unless you are absolutely convinced of his/her merits, do not appoint a person who is “just an acquaintance”, for example, your wife’s book club member or someone whom you met at parent teacher gatherings. Do not lose sight of the fact that any sale of fixed property is a business transaction – you need a business oriented professional handling it.

2. Ask yourself, is the agent likely to be able to relate to the type of buyer who will be suitable for your property. There is no point in getting an agent well past retirement age to sell a trendy penthouse in a modern block, but such an agent may be the perfect choice for a house in a retirement village.

3. Check that your agent works more or less full time in your area and is focused on it. In this tight market, the agent should not be selling property as a “hobby”. In particular, the agent must have in-depth knowledge of the suburb in order to convince buyers of the value of your property.

4. Check that the agent has been successful. Ask him to produce in writing a list of the homes he has sold in the last six months – with data on his valuation and the amount achieved.

Ask permission to contact his previous clients. If the agent has not sold at least one home per month on average, he is probably not a top performer – though the rate of sale in the higher brackets is always slower.

5. Ask what other properties he is selling in the area. If he has many, query how much time he will give to your property. A big stock list is not proof of success – it may in fact be a reason not to appoint someone. See if the agent is able to tell give fundamental but vital information about the size of the erf and the size of the dwelling.

“In my opinion, no agent can handle more than ten properties at one time with real efficiency. If they take on large numbers, they are likely to delegate important work to less qualified assistants.”

6. Follow your instincts – do you feel you can trust this agent? Do you feel you could accept his word on all occasions? Do you feel that the agent will place your interests above their own? Bear in mind that in many cases, your decision on accepting an offer is based on feedback/guidance provided by your agent.

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