Interest rate hike comes as no surprise

This week’s interest rate hike comes as no surprise.

This statement, not in the sense that I think we should have it, but simply that the matter is so “on the fence” that the decision could go either way in any of the MPC meetings. The SARB is faced with horrible decisions because GDP growth is pathetic and nothing exists on the horizon to change the situation. You get the feeling that the world economy is moribund as the USA growth story is so fragile and based on the billions of printed Dollars, whilst the China story has been coming for some time and now that it has hit, seems obvious and irreversible in the medium-term [make that 3-5 years]. The impact of both on South Africa is direct and inescapable – the USA is needed for global growth particularly amongst our leading trade partners and we critically need China to buy our primary commodities [frankly, so do Australia and many other so-called development economies, in Africa, Asia and South America]. The Rand is weak and we sit with the Rating agencies’ threat of junk bond status hovering like Damocles’ sword over our national head.

Talking about our “sword of Damocles”, according to Wikipedia:

“Damocles (literally: “fame of the people”) is a figure featured in a single moral anecdote commonly referred to as “the Sword of Damocles”, an allusion to the imminent and ever-present peril faced by those in positions of power. The Damocles of the anecdote was an obsequious courtier in the court of Dionysius II of Syracuse, a 4th-century BC tyrant of Syracuse, Sicily. According to the story, Damocles was pandering to Dionysus, his king, and exclaimed to him that he was truly fortunate as a great man of power and authority, surrounded by magnificence. Dionysius then offered to switch places with Damocles so that Damocles could taste that very fortune first-hand. Damocles quickly and eagerly accepted the king’s proposal. Damocles sat down in the king’s throne surrounded by every luxury, but Dionysius arranged that a huge sword should hang above the throne, held at the pommel only by a single hair of a horse’s tail. Damocles finally begged the king that he be allowed to depart because he no longer wanted to be so fortunate, realizing that with great fortune and power comes also great responsibility (and danger). “

The decision to raise the Repo rate is as tense. We are told that the USA has to raise rates at some stage so as to protect inflation in that country from raising its head as growth rates rise. In addition, there is justifiable concern that not signalling a rise of interest rates will over-stimulate the propensity of the American public to spend on credit. Many consider that the rise of the rate will occur later this month partly to curtail overspending for Christmas. For SA Inc, this means that money will be invested in the Dollar and our currency will weaken further. Roll on R15 to the US$ which will have its own impact on our inflation and require rate rises to temper it. Not pretty by any means. But remember to see the interest rate rise in relative and not absolute terms. When it started, our Repo rate was 5% and the 0.25% absolute increase was a 5% rise in interest cost. This rise, off a base of 6% was absolute 0.25% but only a 4.2% rise in interest cost. The Prime rate is still below 10%, psychologically in  single digit territory. To put it in monetary terms with which we may better identify, a R1m bond just became R164 per month more expensive with a total of R807 per month in total since the upward rate cycle began, which is 2% and 9% relative increase in interest costs, respectively. Necessary? If the USA rate rises, yes; if not, then no, too much too soon in a struggling economy.

However, don’t lose heart. The increases are really well controlled and pre-emptive. In the figure below you will note how interest increases have been cone-shaped in the past – steep and effective but with the risk of collateral damage. In the recent rate increases, much circumspection has gone into grasping the nettle early but not squeezing the life out of the economy.

South African Repurchase Rate

With this background, I was struck by a Moneyweb article by Patrick Cairns on 20 November 2015, titled, South Africa needs a “Modi moment”.

We have a great country, tortured yet beautiful. We have people with a will to stay here and continue to make it greater. We need leadership in every sector but are blessed with good examples in the property industry. Our estate agencies, originators, developers and property funds are world-class in many respects. So we in property are truly blessed. Homeloan Junction is proud of its place in the tapestry of the industry, small but well deserved.

Yours in Property

Why get pre-qualified?

It used to be that buyers looking to purchase property could secure an actual pre-approval from banks or lenders for a homeloan, but with the advent of the recently revised National Credit Act (NCA) those days are gone. That said, it is still possible for a potential purchaser to get pre-qualified for a homeloan. However, buyers must understand this is a service, as opposed to a product, offered by bond originators to assist them in ascertaining if the buyer can realistically afford the homeloan they’re applying for. While it is not a guarantee of approval – the final decision rests with the bank – pre-qualification does have a valuable place in the home buying process.

Avoid Disappointment

Getting pre-qualified for a homeloan is free and can help you determine the price range you can afford to explore before you even go looking at potential properties. This helps you avoid wasting time and effort looking at properties you have no hope of securing a homeloan for, as well as the inevitable disappointment if you’ve set your heart on a home out of your price range. On a positive note, pre-qualification is an excellent guide for establishing realistic expectations as far as your purchasing power goes.

It’s Quick and Easy

The process of getting pre-qualified for a homeloan is quick and relatively simple. Under the revised NCA, it typically takes into account your disposable income, either individual or joint depending on your marital status, and your credit score. The latter is with your consent, naturally, but considering the bank or lender is going to take your credit score into account when you do make formal application for a homeloan, you may as well know now exactly where you stand in this respect. The other bonus of establishing your credit score at this point is that if there are any issues in this regard, issues that could potentially hinder your homeloan application, you can take steps to resolve these issues sooner rather than later. Pre-qualification can also give you an indication of whether you need to save for a deposit or not.

Paperwork

To complete the pre-qualification process, you will require the following paperwork: your identity document; your most recent payslip; and your last three month’s bank statements. Your disposable income is calculated by deducting tax, UIF and any company pension payments from your gross income. This leaves your net income and once your total monthly household and utility expenses and any credit, vehicle or other loan repayments are deducted from this amount, what remains is your disposable income. Most banks and lenders will calculate the maximum monthly instalment as 30% of your gross income.

Hassle-free

Another advantage to using a bond originator to get pre-qualified for a homeloan is that the bond originator will determine your chances of firstly securing a homeloan, secondly establishing the amount you’ll qualify for on your current income.

What happens after you get pre-qualified for a homeloan?

Once the pre-qualification process is complete, you will receive a certification stating the homeloan amount you are deemed capable of affording. Note that while this certification is only valid for a limited period it is still a valuable first step onto the property ladder and gives you the leverage to confidently negotiate with a seller and put in an offer to purchase. Getting pre-qualified for a homeloan indicates to the estate agent and seller alike that you are serious about the home buying process. Furthermore, it can improve the likelihood of your formal bond application being approved. And even speed up the application process, particularly as you’ll have dealt with most of the obvious hurdles by completing the pre-qualification process.

Pre-qualification is an excellent tool to aid the potential purchaser in navigating the home buying process. It empowers you to enter the real estate market with your eyes wide open. If you are planning to buy property, take the hassle and uncertainty out of the process by getting pre-qualified for a homeloan. For assistance, contact Homeloan Junction.

To Buy or not to Buy? How to make the choice right for you…

I have been trawling the property information keeping myself up to speed with developments. There is a gloom in the economy, but fortunately the property sales and mortgage business is not in the doldrums. Affordable housing has looked good for years and developments continue in many areas of the country. It has probably been the manner in which the SARB has guardedly raised rates that has keep the property market on an even keel. Let’s hope it stays that way; boom and bust is disruptive and we cannot afford disruption in a national asset being Residential Housing.

The question often comes up, especially from First-time Homebuyers, is this the right time to buy? In other words, To Buy or not to Buy? – that is the question.

The answer is always the same for me: Do you think the cost of building is going to go down? If the answer is Yes, then wait. If the answer is No, then buy. Let’s explore this issue in a bit more depth.

Inflation, on a global scale, has been kept in check very nicely. Some of the major countries, Japan noteably, have reduced interest rates to historic levels on the back of close-to-zero inflation. Costs of production have been driven down by the Asian countries and currencies have been relatively stable for many years. In the past year or two that has no longer been the case and currency fluctuations and even devaluations, have become the norm. As we’ve mentioned before, thank goodness for the low oil price.  So the inflation story sounds quite benign until it comes to building costs. News24, on 20 February 2015 reported, Building costs have continued to increase by more than the average consumer price inflation rate over the past 15 years, according to Jacques du Toit, property analyst of Absa Home Loans. The latest Absa residential building review compiled by Du Toit shows the average building cost of new housing constructed came to R5 828/m² in 2014, which was 12% higher than the cost of R5 205/m² in 2013. The building costs are affected by a number of factors such as building material costs, labour costs, transport costs, equipment costs, land prices, rezoning costs, developer and contractor holding costs and profit margins.

That insight answers the first question and clearly, building costs are not reducing and frankly, seldom have. I guess the question then is, what should I be buying?

Think about the following:

Affordability
Don’t buy what you cannot afford. The bank will help you with this and strictly test your income and expenditure in terms of well-known affordability guidelines laid down by the National Credit Regulator. Do an affordability calculation to see what you can afford to buy.

Improve or Buy
Buying and selling homes is an expensive affair. As a rule of thumb, knock off 20% – 30% of the price of your new home for costs. Transfer and estate agent commission could already be about 12% and then bond settlement and registration costs and furnishings add to the tally. Improving instead of buying could prove much cheaper and convenient.

What to buy
If you’re going to buy, buy wisely. For normal family living, close to shops and schools, proximity to work, sport and social events makes eminent sense. Remember, what you like or don’t like as a normal consumer probably counts for many others’ opinions as well. It may be cheaper next to the highway but probably all the b
uyers agree that you can’t hear yourself talk in the garden. Then, if you can afford it, take some advice from my late Uncle – there are two strips of land that are scarce, along the coastline and along the top of a mountain range. Houses in these two places carry and hold a premium in the long run. I am also a proponent of secure estates and, in particular, golf estates. Secure estates for the obvious reason of enhanced security but golf estates, in addition, give you lifestyle for the family. And remember, few additional golf estates are being developed – they are just too expensive and water is becoming a serious problem – thus adding to the scarcity value.

Future plans 
Don’t put yourself through the trauma of moving twice! If you have your eye on emigration, a job in another town or a particular suburb or estate, don’t buy now. Wait until you can settle and then sell and settle in the new environment. By the way, building can be a real pain and you would be a rare person to not have a “builders story” after completing your house. The same can be said for renovation but it is normally on a smaller scale.

Investment or not 
Robert Kyosaki [of Rich Dad Poor Dad fame] is quite right when he says that an asset that does not produce income and requires maintenance and services, is actually a liability. In fact he goes so far as to say, buy and rent a factory and let the factory buy the house from nett rent. But most of us don’t live there and we get great pleasure from owning a property and knowing it is the domain of our family. For this reason, the comments about What to Buy become really important. You would at least look to capital appreciation to offset the costs when you sell the property so choose the Location well. This section particularly applies to “that little house at the sea”. Truth is that we could do well, in most cases, to rent or use a guest house for our holidays, rather than battle financially to pay off a second home.

If you think you can afford it, buy now. Be wise and look around. Consider all your options and do your best to think ahead a few years. But, I would posit, do not delay too long if you can afford to buy now.

And always remember Homeloan Junction is there for you. Dealing with us is free. Yes, you read right – free. And we’ll back that mortgage service up with sound advice and expert knowledge.

 Yours in Property.

Five good reasons to go with a real estate agent

While a real estate agent can’t cut through the red tape with regards to securing a homeloan, they can most certainly facilitate the home buying process so that it is as smooth and painless as possible. They have the skills, the resources and the experience to help make the process so much easier. This is particularly important for first time home buyers and for those purchasers who are dependent on the sale of their current house in order to afford a move up the property ladder.

1. Choices, Choices, Choices

As an expert in the real estate market, a real estate agent can assist you, the buyer, in finding a property that best suits your ideal location, size and needs at the most favourable terms. A good real estate agent will go to the effort of establishing the price range you can comfortably afford and not take you to view properties you can’t afford.

A real estate agent will usually work in a specific residential area and will therefore be familiar with logistics such as the positioning of a prospective home in relation to schools, shopping facilities, access routes and other amenities like medical facilities, bus routes and so on. And as an objective party, the agent can easily spot the strengths and weaknesses of a property. They will be able to highlight aspects of a prospective home that may still satisfy your expectations and needs even if said property does not quite meet all your given requirements.

2. The Duty’s in the Details

When you use a real estate agent to help you buy a property, the agent is legally and ethically duty bound to serve your best interests. This extends to not misrepresenting a prospective property. Your real estate agent is obliged to make you aware of any and all information in relation to the property including disclosing any defects the property may have. This said, should you have any doubts, it might be worth calling in an expert structural advisor as certifying your prospective home’s construction falls out of the purview of your agent. Full disclosure also covers any potential zoning issues your agent is aware of such as plans to build a three-storey apartment block on a neighbouring property as this could dramatically, and negatively, impact on the future value of your new home.

3. Help with your Homeloan Application

When you have made the ‘big’ decision, a good real estate agent can advise you on making a reasonable and market-related offer on your ‘dream’ home. If you’re in agreement, your agent will complete the obligatory ‘offer to purchase’ form on your behalf. Your estate agent can also assist with the homeloan application process; they all have long standing relationships with Bond Originators like Homeloan Junction.

4. Negotiating the Paperwork

The home buying process is complex and there is a great deal of paperwork involved. Once your offer to purchase has been accepted and your homeloan is secured, your real estate agent will guide you through the remaining purchasing hurdles and help you cross the finish line. Your Estate Agent will be with you until the sale is successfully closed and your new property is officially registered with the Title Deeds office.

5. Communication Counts

When you have a real estate agent helping you with the home buying process, you not only benefit from their expertise and knowledge; you get someone in your corner who will keep you informed through every step of the home buying process and be there for you in the event of problems with any aspect of the process. This goes a long way to alleviate the stress and risk involved in making such a critical financial commitment. Practising clear and open communication prevents misunderstandings and messy disputes down the line and is in the best interest of the agent whose reputation is at stake if he/she is marked as disreputable. After all, the agent doesn’t want what should be an exciting and positive experience for you to be tainted by buyer’s remorse.

Yours In Property

Vincent

How to pay off your home loan faster

Does the thought of twenty or thirty years of home loan repayments put you off buying a home? Even your dream home can start to look less dreamy when you’re faced with what looks like a life sentence of hefty monthly repayments. But what if there was a way to reduce this period … and reduce the total amount?

Buying a home is one the biggest financial investments most of us will make, yet how many of us are aware that small additional payments on your home loan can have a major impact on the final amount you will end up paying for your home? The biggest burden facing homeowners with a bond is the interest they will pay over a 20 or 30 year period.

Say you take a R1 million home loan over 20 years, no deposit and at the current prime lending rate of 9.5%;  you will end up paying R2 237 115 for your home. That’s enough to give anyone grey hair! But, before you lose heart, there are a number of steps you can take to pay your bond off faster … and significantly reduce that final figure!

Take a look at these 5 clever ways to bring down your home loan repayments:

Pay your salary into your Bond

I know it might sound strange, but as long as you have an access account enabled on your bond you can actually pay your salary into your home loan every month and then simply transfer out money needed for debit orders and day to day spending when you need it.

Here are the advantages of doing this:

– Benefit from lower interest rates applicable to the outstanding amount on your home loan
– Inadvertently use your home loan account as a savings account and pay off your home loan faster

Make Additional Payments

Fast track the repayment of your home loan by putting any surplus cash, like your bonus cheque or SARS refund, you have into your bond. Yes, this does require discipline and a measure of sacrifice but the long-term gain on your home loan is well worth it. Take for example, an additional R1200 paid towards your R1 million home loan every month, over and above the monthly instalment (R9 321 in this case) owed, and you’re looking at saving R374 344 in interest … and cutting your repayment period down to 14.75 years.

 Put Down a Deposit

If you are still in the planning phase of purchasing a home, consider putting down a deposit rather than taking a 100% bond. The bigger the deposit you’re able to put down, the smaller your home loan and the less interest you will pay. On a R1 million home, a deposit of R120 000 will reduce the interest you owe on the outstanding capital to R1 088 661. That is a straight up saving of R268 454 before you’ve even considered taking any of the additional actions discussed above. Calculate how much a deposit can save you, by viewing our Bond Repayment Calculator.

Ignore Rate Fluctuations

While you have no choice but to make increased monthly instalments should the prime lending rate increase, heaven forbid, it is a wise choice to keep your instalments steady in the event the rate decreases as this gives you an automatic gain on your bond. You’re already committed to paying a certain instalment so sticking to this amount should the rate drop gives you an added advantage in paying off your home loan that much faster.

Explore Your Home Loan Options

It doesn’t hurt to explore your options in order to secure an even better rate on your bond. Talk to a bond originator like Homeloan Junction. If you have a good repayment track record and credit history, who knows, they may just be able to negotiate a reduced interest rate. Even a 0.5% reduction can represent a significant saving; that is R77 773 saved on a R1 million bond over 20 years with no deposit down. Should you decide to switch home loan providers, be sure that the cancellation and penalty fees you’ll inevitably be charged will not outweigh your prospective savings.

As you can see, a little commitment and discipline can go a long way to alleviating the burden of your bond. And at the end of the day, paying off your bond faster and reducing the amount of interest you owe on your home loan translates to money in your pocket. This can be used towards your retirement, your children’s university fees, a world cruise or perhaps an investment property.

Yours in Property

Vincent