Rising interest rates, stringent new consumer credit legislation and soaring fuel, food and electricity costs are not making life easy at the moment. Enthusiasm for property has also been doused in view of negative sentiment about the country’s political landscape. And unfortunately for sellers, buyers and property industry players, the tough times are set to continue well into next year, with another interest rate hike expected in August.
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It is reported that more than 50% of all home loan applications were rejected by banks during June. Affordability has become the major issue, with bond repayments up nearly 40% in the past two years. Average interest rate concessions to prime have also fallen from 1,31% to 1,25% in the past year. Home owners are accordingly finding it increasingly difficult to find bond terms that they are comfortable with. An important consideration when purchasing property at the moment is that the major banks are constraining lending of higher value loans and often no longer granting 100% of the property value. Most banks now require a deposit of between 10 – 20% on a mortgage bond. Typically, loans up to R2,7m now require a deposit of 5%. Mortgages between R2,7m and R4m need a deposit of 10%, and loans greater than R4m are granted subject to a 15% - 20% deposit. On vacant land, some lenders require a 25% deposit. The banks require these bigger deposits to create a buffer for future interest rate increases, to improve the security of the loan and to create the means to restructure the loan in the event of default. Large variances in interest rate concessions given by the different banks are also being experienced – even on the same home loan application. It is important to secure the best possible deal for yourself, as a small difference in interest rate is significant in the long run, adding a large amount to the total repayment cost over the full term and increasing your monthly repayment. The good news is that the major banks are still offering 100% home loans to first time buyers, and on properties in the “affordable housing” market. Some have capped 100% loans for bonds up to R1 m, but others are proving more flexible. While higher interest rates and a slowdown in property price growth are a reality, they are actually creating positive conditions for buyers – first time buyers, property investors and buyers looking to upsize. It’s a buyer’s market, and sellers are slowly adjusting their expectations in order to sell. Buyers, who have had tougher times of late, now have the upper hand and should be looking to negotiate good deals. Some experts are of the opinion that the current level of fear in the industry is overblown, as the situation is temporary and directly linked to interest rates. They predict that the market will recover quickly once interest rates come down, (now expected towards the end of 2009) with strong housing price growth expected for the three to four years thereafter. For now, wise investors with a long term timeframe can capitalise on the current economic climate to make good value purchases. Taking these varied factors into consideration, the role of the bond originator has become even more essential. There are many issues that you as a buyer need to take into account when applying for a home loan, which a professional bond originator can help you deal with. The profile of each buyer is different from the next, and a “one-size-fits-all” approach to mortgage loans no longer applies. The originator’s understanding of the banks, their individual procedures and their bond products is vital in order to find the best product for you, as an individual buyer. When one considers that a fair percentage of home loan applications declined by one bank in June were then approved by another bank, it would definitely benefit a property buyer to enlist the services of a bond originator. It is important for buyers to put themselves in a position to move quickly. This means getting pre-qualified for a home loan, and then educating yourself about the market in the area you are interested in. A professional bond originator can play an invaluable role here, from providing experienced consultants who really add value to the process, to hassle free pre-qualification and helping source good value properties. At iLoan, we may also cover your bond registration costs, and we have good relationships with a panel of attorneys to ensure that the legal process runs smoothly.