What is Bridging Finance?

Does this scenario sound familiar? Mark is planning to move to Pretoria with his family. The plan is to buy a new house from the proceeds of the sale of his current house. However, he will not be able to buy his new house before the purchase and transfer of the old residence is completed.

Fortunately, he doesn’t have to lose the new house. He may take a bridging finance option which will allow him to access equity from his current residence and use it as a down payment on his new residence. Does this sound like an option for you?

You’ve Sold … Now What?

Congratulations, you’ve sold your house! Now, all you can think of is moving on and getting into a new place. The only problem is that a seller of property is only paid the net proceeds from the sale on registration of transfer.  This can seriously hamper your style, especially if you’re in a hurry to get your family settled in a new home. Nobody likes disruption, and a house move is right up there with the major contributors to stress. Living in limbo is even worse! How can you secure that new home?

Registration of transfer is a lengthy process that can take up to three months or even longer. Fortunately, there are registered credit providers who offer sellers like you access to their funds within 24 hours in the form of bridging finance.

Let’s take a closer look at bridging finance.

Interim Financial Solution

Bridging finance is a short-term loan, usually for a period of two weeks to about three years. It is interim financing before a permanent loan or the next stage of financing is settled. Once the permanent loan is acquired, some of the money is used to settle the bridging loan before proceeding with the other financial obligations.

The Ins and Outs of Bridging Finance

Bridging finance is more expensive that other forms of financing. The extra interest levied on the loan takes care of the risk involved in dispensing the loan. The fee paid for processing the loan is also higher than that of conventional loans. There might be other costs that are amortized over a shorter period such as equity participation for the lender. When applying for a bridging loan, the lender may ask for collateral from several sources and a lower loan to value ratio in order to cover the extra cost. Nevertheless, the process of applying for the loan can be quite simple.

Bridging finance is very common in the commercial sector where the borrowers would like to have the finance to close on an opportunity. What about property deals? Many buyers take a bridging loan to buy a well-priced property, quickly. Others take such loans to prevent a foreclosure that could be in the offing.

What About Rates And Taxes?

Remember, there might be other costs which need to be paid for in advance, such as rates and levies. In order for a property sale to be registered with the deeds office, the local council needs to issue a Rates and Taxes Clearance Certificate. Any arrears on your rates and taxes account need to be settled immediately – what if you are not in a position to do this? Like Mark, you’ll need an advance to settle this bill, get the Rates and Taxes Clearance Certificate, conclude the sale of your existing property … and only then secure your new home.

Don’t let a small thing like settling your account with your local municipality stand in the way of moving on to a fresh start in a dream home. The bridging finance loan is paid back once such a property is sold or refinanced with another type of financing. A bridging loan may be all that you need to secure the residential or commercial property of your dreams.

One thing to bear in mind when you’re looking for a bridging loan: it pays to go with a registered credit provider to get competitive rates and fees.

Does it sound like you could use bridging finance to relieve your financial stress? Get in Touch

Yours in Property

Vincent

THE STATE OF THE MARKET AND THE GLOBAL ECONOMY: WILL YOU RISE OR FALL?

My apologies for this blog so late in January 2016. To be honest, I have been thrown by the state of the market and the global economy. Little positive has come out of all the news and the negativity has taken on Grim Reaper proportions. Every article seems to be focussed on the negative and bad news aplenty has been there to write about. El Nino and El Nene, the collapse of the oil price, the pressure test of the Oil industry and oil-producing countries, threats of social unrest as the drought intensifies and the oil-based economies suffer, Donald Trump and Hiliary, and the Rand on its way to R20/$. Each and all contributed to a flood of depressing information.

But that said, some sanguine voices have arisen and a semblance of encouraging, well-backed information has begun to emerge. So let’s have a look at a few of the pillars that underpin some good news and find our way into February and beyond. Cliché or not, Henry Ford sounds clear: If you think you can or you think you can’t, you’re right.

Low Oil Prices: I often think Thank Goodness for the lowest oil prices in a decade. For the consumer of oil, that has been a saving grace. Imagine having to buy Oil at R16.50 per Dollar? I guess the price at the pump would be R14+. Macroeconomically, the oil price also contributes positively to Inflation which, as we see later, must be on the rise.

The problem that is being referred to by many writers, however, is the impact of low oil prices on the oil-producing countries. Of the BRICS countries with whom we have close co-operation, Russia and Brazil both have significant economies built on oil. Then there are the Asian countries like Saudi Arabia and closer to home, Nigeria and Angola. If a country endures dramatic, sustained drops in the price of its richest export, what happens to its people? Of course, the worst is feared especially at levels below $30. Today (25 January) it is up to $32.18 from last week’s sub-$30 prices. That could prove to be good news even for own Sasol.

USA interest rates rise: The USA interest rate rise signals the FED’s satisfaction with the US economy. 2% GDP growth is not fantastic but coupled with a 5% Unemployment rate, is cause for a small move. This is the first rate rise in 8 years and sent the currency markets into a flurry. Thanks to our Reserve Bank, we had already begun the process of raising interest rates. This did help cushion the decline of the Rand. The FED has signalled more increases but I suspect these will be 6 monthly and of the order of 0.1 to 0.15% – right now nobody wants to allow the US economy to stumble.

Inflation: The world has experienced extremely low inflation as the interest rates and China have functioned in tandem. Inexpensive production out of China to global markets and very low interest rates have kept Inflation at lows for record periods. But, post the sub-Prime crisis, the printing of money became commonplace and it was just a matter of time before inflationary pressures would reappear. Rather than focus on the rest of the world, South Africa will be hard hit by this issue. A weak Rand, set to weaken much further, and the drought with its Maize imports will hit Inflation hard. A particular make of 4X4 has risen from R713000 in 2012, to R890000 in 2015 to R980000 in 2016. That’s 13.5% per annum or twice the upper range of the SARB’s target. Far more relevant is the current requirement of Maize to be imported at a cost of R20bn; once we’ve paid for it, our producers need to make a profit on sale. The Poor amongst us will bear the brunt of the drought.

My sense is that our Inflation will rise significantly this and next year and exceed the target range of 3-6% even this year.

Interest Rates: In all of this, our interest rate was generally projected to rise by 1.5% from about mid-2015 to end-2016. My sense is that we could see a rise of another 2% this year in order to protect the Rand/$ exchange rate and in an attempt to curtail Inflation. This will result in a  corresponding rise in mortgage rates.

What is really positive is that Pravin Gordhan said last week at a Press conference that he would do everything in his power to prevent the Rating Agencies re-rating South Africa to non-investment grade (Junk bond) status. By the way, Brazil and Russia are already there and Saudi Arabia is, like us, on the brink so we are not the only ones in this pickle. The question will be if he has the resources in the budget to do so and a tax hike seems to be on the cards as part of his attempt. Sadly, a downwards rating will weaken the Rand and increase Inflation and interest rates.

China at 6+%: The way many people have been writing, you would think China is in recession. This is not true and that country is currently growing at about 6.8% per annum. Their stock market seems to warn of an underlying crisis but it has 50 million [you read right: Fifty million] personal investors and their layman’s view could be “run to avoid the stampede”. Assuming this is not the problem, the Chinese stock exchange should settle at a new, albeit, lower equilibrium, and stop spooking the other world markets.

Goldman Sachs report: Prime Minister Modi in India is credited with the revival in that country. India is growing at 7.2%  and has introduced business friendly policies that have brought about a marked improvement in growth and employment. China’s 6.8% is then ahead of Indonesia at 4.5% and Turkey at 3%. Overall, Goldman’s report puts 2016 global growth at 3.5% (2015: 3,2%), confirming the World bank view of 2016 growth between 3 and 4%.

It would seem therefore that many economies are progressing well even though stock markets worldwide have found themselves in a fear-and-greed state. The consequence of this is volatility and we will need to get used to it for the next quarter or two assuming the oil price retains some stability above $30 and China settles down enough for a recovery in commodity prices. Hold thumbs!

So, as we read about this mixed up world economy, there lies a decision for each of us – Rise or Fall. I understand that it’s “talking psychology” again but I think Henry Ford had a point. Why is it that some businesses will do well despite the headwind and others will crumple into a heap? Surely attitude, determination, a go-through spirit and sound leadership has a massive role to play. Look how India – complex beyond compare – can be turned around by a man and his vision translated into action by his government. Compare that to what we endure despite our blessed resources, sound financial system, great infrastructure and people; really, there is no excuse. On the other hand, we are not immune nor an exception – Australia is suffering the commodity price slump, Europe is struggling to come out of its economic woes, the whole of Southern Africa is in the grip of drought, and the USA and the UK are two of the most indebted countries on earth. But, instead of bemoaning our dear country, stand up and be the difference you want to and need to see.

Homeloan Junction will commit to putting its best foot forward. In doing so, thank you, in anticipation, for the support we will receive from you in 2016.

Yours in Property,

Jack

Buy-to-Let Home Loans

Buy-to-let home loans are the smart way for South Africans to invest for their future. Buy an investment property while your children are young and when their college-time for comes around, you can borrow against the investment property to help finance their education. When the home loan is fully paid up, you will not only have a property but also additional income every month.

The way to make money on a house is to buy it and keep it for a long time.  It is a lucrative way to supplement your retirement income. Because:

● someone else’s money is helping to buy your investment property;

● when the loan is paid off, the property and the growth value is yours;

● a property can be used as a tax deduction;

● besides the maintenance, it is a relatively unencumbered investment with excellent growth over time.

Getting a Buy-to-Let Home Loan

A successful buy-to-let investment begins with thorough investigation into buy-to-let home loans. If you do your homework and seek the support and advice of an experienced estate agent or bond originator, you will likely do well.

The less it costs you to borrow the investment money the greater your profit will eventually be. The way your taxes are structured will play a role in your margin of profit. Consult with your tax accountant before making any final decisions.

Begin By Researching On Your Own

A buy-to-let home loan is an investment strategy that is growing in popularity with South Africans. If you think property sounds like a promising investment for you search for a buy-to-let home loan lender on the Internet. There are calculators you can use to find answers to preliminary questions.

Questions such as: how much you can afford to invest in a rental property; is a down payment required; what the interest rate will be; the term over which the loan will run; if the loan can be repaid over a shorter period without incurring penalties.

Study the Real Estate Market

There is certain criteria to look for in an ideal real estate investment property. If you look at small to medium sized single-family homes, use this checklist:

  1. The house should be in good condition. It is okay to refresh the paintwork and the landscaping but you do not want to spend money on expensive refurbishments to a rundown house.
  2. The wise choice of house is not the most expensive on the street. The least expensive would be preferable because you will realise increased value if the nearby properties are expensive.
  3. Check the selling history of the neighbourhood. Have prices gone up or down over the last ten years? You want to see a steady increase.
  4. Your investment property will be attractive to many tenants if it is near schools, parks, a shopping centre and public transport. A stable and safe neighbourhood is a priority.
  5. Check the average rental of homes in the area to help determine the possible monthly return on your investment.

It is advisable to view and research several different areas. A real estate agent would likely be helpful in your investigation and save you some time. This is especially true if you decide to invest in commercial property instead of residential. Comparisons will require extensive investigation.

How do Your Numbers Compare?

When you pre-qualify yourself for a buy-to-let home loan, you find out how much you can afford to borrow for an investment property. You will also discover how much the loan repayments will be every month. These will differ according to the interest rates and loan term.

You will need to juggle the advantages of larger repayments over a shorter period – resulting in an overall eventual saving – opposed to a lower affordable monthly repayment over a longer period.

Part of the equation will be whether you can expect to receive a rental to offset the monthly buy-to-let home loan payment.

This exercise will tell you whether an investment property is the right decision for you at this time.

The Right Decision for You?

In South Africa, the buy-to-let loan market is at an all-time high. Rent with capital growth has become a favoured choice for additional retirement income since the returns on traditional annuities and endowments have proved inadequate for retirees to live comfortably.  It is somehow reassuring to be able to drive by, look at and or even touch your investment.

Property is as valid as any other investment asset. Over the last few years property asset investments have outperformed many other assets investments. Banks are well prepared to help investors with the purchase of buy-to-let residential and commercial properties. Would this be an investment choice for you?

Yours in Property,

Vincent