IMPORTANT PROPERTY INFORMATION

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Sounds very formal but it isn’t. Property is often compared with other forms of investment and kind of comes out in the middle.

Last year, for instance, and believe it or not, Bonds {not mortgage bonds but government bonds] were the best investment in the country with a return of over 15%. Between your unit trust and property, you stayed about even and interest of up to 8.5% still yielded about 6% after tax. So, not a good year for property. Unless your grandparents left you that little 46m2  house in Clifton that’s selling for about R46m 🙂

With that introduction, let’s look at two trends that are emerging.

Build vs Buy

This perennial question is more of a trend than a fact. At times it is less expensive to build than to buy and this fact is usually driven by inflation and sentiment. In my experience, the rule of thumb is building is more expensive than buying. The problem of course, is that we’re never satisfied with the house we buy and always want to improve it “to our liking”. So, from a re-paint to an added room or paving, we spend more than we might have spent on a new house. Probably, if you identify with this, a plot-and-plan is your best bet. Here you get to agree most of the plan with the contractor and then to add a few details that make the house more what you want.

Absa and FNB have recently researched the latest data and reveal that building a new house can set you back about 30% more – averaging a whopping R629 500 extra cost –  than buying an existing home. According to them, this cost gap is the largest recorded since 2003.

Rising inflation in building costs and then the increasing cost of vacant land is at the heart of the problem. Remember, vacant land is not so vacant and the cost of so-called “services” is rising dramatically for developers. One often hears figures of R300-R500000 per plot to provide sewerage, water, roads, security and electricity. Against this backdrop, house prices are rising very slowly.

The average nominal price (before inflation is stripped out) of a new house increased to R2.02 million while an existing home of the same size increased to R1.39 million, according to Absa’s figures for the third quarter of 2016. ABSA’s economist, Jacques du Toit says the price trends on new and existing homes infers that it’s 31.2% – or about R629 5000 – cheaper to have bought an existing home than to build it from scratch. FNB’s data also shows a similar trend, with the replacement cost gap of a home in the fourth quarter of 2016 increasing to 30.4%, which is well above the 21% recorded between 2014 and 2015. The cause for all of this is building costs that continue to soar, with Absa’s data showing that the average building cost of new housing, constructed in January to November 2016, increased by 6.4% year-on-year.

Just for our interest and according to John Loos, FNB’s property economist, the last time the cost of building a new home and buying an existing one were roughly the same, was in 2007 when house prices grew at double-digit levels and the home building boom was in full swing.

All of this in comparison with house price increases that are just avoiding [the really good news!] deflation.

As an equation to compare:

Cost of an existing house + Transfer costs + Costs of alterations = Total cost of an existing house VS
Cost of a new house [Often there are no transfer costs and there should be no alterations]

Think about it carefully before you decide.

Rental Returns

We have often discussed the benefits of a depressed market for landlords. If you need to sell your buy-to-let, it’s bad news but for those renting, depressed prices often mean better returns through higher rentals. This takes place primarily because house prices depress when the economy is sluggish. At that stage, people sell to raise capital and prefer, or need to, rent for a while. More tenants means more rent.

Rents are driven by supply and demand. People who can’t afford a price and may even be battling to get a bond, may find that renting in a select area may be preferable to buying in a less preferred area. Sandton and upmarket areas of Cape Town come to mind. Quoting Charles Vining, managing director of Seeff Sandton, gross rental yields of up to 8% in Sandton are currently possible, especially in rental stock at lower price levels. “A bachelor or studio apartment in Sandton central will cost around R7 500/month. A one-bedroom apartment can be picked up for the same price or even less in suburbs like Bryanston or Houghton.”

The rental price range most in demand along the Atlantic Seaboard and City Bowl is between R20 000 and R30 000 a month, for two- to three-bedroom units, says Dinis Martins, chief operating officer of Seeff Atlantic Seaboard & City Bowl. Gross yields of between 6% and 7% are achievable in the active, buoyant market of the Atlantic Seaboard and Cape Town’s City Bowl, says Martins. He expects the same to hold true in 2017.

In my experience, capital appreciation is at the heart of a potential landlord’s buy-to-let decision. Seldom mentioned is the increasing cost of services – rates, maintenance, and levies – which erode your rental return. Those of you blessed to have purchased many years ago have enjoyed good returns in, say, Sandton over 10 years or so. However, what has now happened is that new complexes have been built with all the glam of modernity. They offer good rental options, beat the traffic and are proving desirable. Therefore apartments that are a little tired need renovation and have begun to stagnate in capital growth. At the same time, rents have peaked in the complexes. The net return from the proceeds of a sale placed in a bank becomes a real option. Alternatively, selling the peaked unit and buying into a modern complex is also a way of perpetuating your rental income. A new 2-bed, 2-bath unit in Cape Town’s southern suburbs will set you back R3m and give you a gross rental of R16000, for instance.

My view always is that instead of debating buy-to-let, you should have a unit or two in your portfolio. And remember, Trouble Equals Distance Squared so be sure to buy a rental unit where you can “touch and feel it” – nothing like a burst geyser in a Cape Twon apartment while you’re living in Joburg.

If you’re in the market for a home for own use or as an investment, why not speak to your local Homeloan Junction consultant. You will find they have great expertise around bond and property costs and could refer you to excellent estate agents who will help you make the right decision for you and your family.

Yours in Property.

WHAT ARE PROPERTY TRANSFER COSTS?

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Buying or selling a property is probably the biggest financial commitment you will ever make in your lifetime. But naturally we can get so wrapped up in emotion when it comes to buying/selling a property that we rarely take the time to research other costs involved. This is why we strongly believe that it’s crucial to fully understand all the factors that go into influencing the purchase, no matter how overwhelming they might seem at the time.

When you decide to buy a property, the conveyancer or transfer attorney will start to prepare the transfer documents on receipt of the title deed, personal details and confirmation that all conditions have been met by both parties. The attorney will then start the process to register the transfer of the property in the Deeds Office. The transfer costs that you will have to pay are made up of four main fees that you will need to pay to the transferring attorney who in turn will pay the respective parties, including themselves.

The transfer costs are as follows:

1. Conveyancing fees

These fees are payable to the transferring attorney for carrying out the legal procedures required to change the ownership of the property into your name and for generating all the necessary documentation. The amount is calculated on a sliding scale based on the purchase price of the property and is the only one of the transfer costs which is negotiable. In the event of the transaction being repeat business, then attorneys may consider a reduced charge. It is worth bearing in mind that conveyancing fees are subject to VAT.

2. Administration fees

This is a set, non-negotiable minimum fee paid to the transferring authority for costs relating to the Deeds Office search, to verify the respective parties for FICA and for petty cash expenditure such as postage. The FICA verification has to do with compliance with the Financial Intelligence Centre Act which requires the attorney to verify the identity and address of the parties and in the case of you, the buyer, the source of funds for the transaction. VAT is also applicable in this case.

3. Deeds Office fee

This transfer cost is paid to the transferring authority which will then pay this over to the Deeds Office. The Deeds Office requires this fee as a result of their having to update their records. The way it is calculated is according to the purchase price and is neither negotiable nor subject to VAT.

4. Transfer duty

This tax is payable on transfer of the property and is paid to SARS by the transferring authority. It is calculated depending on whether the property is registered for VAT or not. No transfer fee is required if the purchase price is below R750 000. A property exceeding this amount will require a transfer fee calculated according to a sliding scale. If the property is VAT registered, instead of the transfer fee, VAT becomes payable on every rand of the purchase price calculated at 14% of the purchase price.

5. Clearance certificates

There are also costs that you, as the buyer of a property, will have to pay related to clearance certificates which are arranged and collected by the transferring authority. They will then pay SARS for the tax clearance certificate and the local authority to verify that there are no outstanding rates and taxes payable by the Seller. Without these clearance certificates as proof of payment, the transfer cannot go through.

So if you are in the process of buying that special home, take heed of what transfer costs are applicable to your case.  We believe that what is crucial at this junction is to choose your estate agents with care and make sure your homeloan consultants have expert knowledge of local conditions, trends in property prices and the resources to provide you with all the facts you need to make important decisions. You need to partner with a company that will put your needs first, honour the relationships you have set up with an estate agent and provide you with a sense of belonging to a dynamic team. Then you too could be well on your way to purchasing that special property for you and your loved ones.

 

AFFORDABILITY

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We’re in that time again in the business cycle, when affordability begins to come into question. So, let’s question it.

I want to put the negative on the table first so we can get it off the table quickly. Depending on your measure of doom and gloom,affordability is affected by many factors that work together. For us today, let’s make them Inflation, Interest Rates, and Employment. If you have a job, are assured that it is stable, have low interest rates and live in a low inflationary environment, then you haveaffordability. In our environment, inflation is out the range at 6.3% average this year, rates may be about to rise and jobs are not secure. Therefore, on the negative side, Affordability is in question and therefore fewer houses will be sold as less bonds are financed by ever-risk mitigating banks.

NOW I’VE GOT THAT ON AND OFF THE TABLE, LET’S SEE SOMETHING THAT IS INTERESTING. IN FACT, EVEN IF THE RATES GO UP SOON, THEN MUCH OF WHAT I SAY WILL STILL STAND.

On the positive side, a September 2016 ABSA Property Market Overview, led me to thinking. It said:

– Average nominal house price growth in August 2016 was at its lowest in 4 years, year-on-year.

– Nominal house price growth is to remain under downward pressure in the rest of the year and into 2017.

Against this backdrop, those of us who have been in the property industry for a long time will recognize some interesting signs. The banks are strict lenders of credit but frankly, at this stage are still lending and at significant loans-to-value ratios. The interest rate rise has been managed superbly by the SARB – you can debate if raising rates has been necessary but you can’t debate the intelligence, independence and stability of the SARB. It has really managed a difficult process in the whitewater of the global economy with due diligence and clear communication. So that said, if the rate rises this week, it will continue along similar lines – my premise is that it will not rise and if it does, will not have a negative effect. On the other side of the ocean, strong consensus is that the FED will not raise interest rates given the soggy USA economy. So let’s assume rates stay the same there and here. As regards inflation, we do have it and it must be dealt but if the Rand remains stable below R14.50 and Oil remains <US$50, it will help curb further Rand declines. So let’s assume the Rand trades in this current range with a blip, make that “serious blip”, around a possible downgrade. Then Employment is about as bad as it can get in the formal [read: mortgage borrowing] sector. Certain industries, Steel especially, are under the cosh but generally, Mining, Manufacturing and a few other sectors, like Property, are doing fairly well. [Please believe me, given the stuff of our politics, EU/British politics, Japan’s economy etc, we are doing fairly well.]

So we have Interest rates stable or well managed, Inflation hopefully will peak and decline a little and Employment will remain soft but stable. If that is true, then Affordability comes into play. You see, cost prices of houses are declining. Therefore loans-to-values will increase. Therefore there will be a few happier credit managers around the place prepared to take a better view of your customers’ mortgage application. Affordability will kick into play – all of the positive, easy-to-feel effects of a Consumer more capable of paying for houses whose prices have decreased. Now that’s good news.

As always, I like to stick my neck out on these issues and if you asked me what the biggest risk is, well, it’s the downgrade of our country. Sad but true. However, many experts believe it is factored in and shouldn’t present a major change in the medium-term. In the short-term, it will feel like a blow to the financial Solar Plexis but we will survive and come through it.

There is another fact that is a driving force of much that is our economy – the Middle Class. Here is an article from Business Tech copied which makes good reading:This is what it means to be middle class in South Africa

There is cause for hope! Watch what you read and distinguish the Noise from the Truth. Watch the new municipalities perform as best they can in the next 5 years remembering they account for 60% plus of our GDP. Watch politics play out but don’t let mind-games play you. Focus like your business life depends on it.

I was reading about a Morningside development this morning. Darn good value. I read some innovative Cape Town property deals last week. Very clever and financially effective. At Homeloan Junction we are determined to understand and then remain positive – who knows but that my scenario above, buoyed by the growth of the Middle Class, does not become our experience and we benefit from improved Affordability at this time in our Mortgage cycle?

Yours in Property.

LOOKING FOR A BOND SOLUTION?

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After months of searching and visiting show houses, you have found the home you want to make your own.  Now what?  If this is the first time you are buying a home, the process may seem overwhelming.  How do you make sure that you are successful in your application for a bond?  How do you make sure that you get the best deal possible on an investment decision as important as your homeloan?  How do you even go about the process of applying for a bond?

Should you go it alone?

The information age has brought in an era of being able to do many things by yourself; things you would previously asked an expert to do.  Within minutes you can have detailed instructions on how to do virtually anything, often with a video to accompany the instructions.  Whilst this can be empowering, sometimes using expert advice and getting professional input is a better decision.  Applying for residential homeloans is one of those areas.

Why use the experts?

When you use a bond originator company that specialises in providing bond solutions, you can be assured that you will have the most favourable outcome possible with regard to your residential homeloans application.  There are a number of reasons for this:

1. They know what each bank requires

A Bond Originator knows what each bank requires.  By examining your application, they will know which banks it would be best to approach for your circumstances.  This will help ensure that you are successful.  Once you have set your heart on a property, you want to know that your bond application will go smoothly.

2. You don’t need to deal with the bank bureaucracy 

When you use a Bond Originator they will deal with the banks directly and will make sure that all requirements are met.  They have experience and expertise and know exactly what is required and who to speak to in order achieve a speedy result.

3. You get the best deal possible

A company providing residential homeloans can take advantage of bank corporate scheme arrangements.  This means that they are able to get you preferential rates and terms, better than those you would be able to arrange by yourself.  Getting the best interest rate possible is very important when you are taking out a loan with a repayment period of between 20 and 30 years.

4. You can access other financial products you may need for the purchase of your new home

The situation often arises when you are purchasing a home that you do not have access to the funds you need when you need them.  For example you may be waiting for the proceeds of the sale of your current house. This can take up to 90 days, and in the meantime you may need to pay transfer fees, deposits, or fees for rates and clearance certificates.

When you use a bond originator they can assist you to access a loan product like bridging finance.

5. You can get expert advice upfront

With a Bond Originator you can get expert advice upfront.  They have a number of calculators that can help you in your decisions.  You can assess what you can afford, what your monthly repayments would be, and how long it will take you to pay off your loan.

You can have a single point of contact, a professional that will assist you in the process and answer all of your questions.

6. It will not cost you anything

There is everything to gain when you use a bond originator.  There is no fee involved, and you have access to excellent advice.  The consultant will be your one point of contact for the process and will guide you throughout.  They will apply at all the institutions for which you qualify.  With their experience, they will also know where you are most likely to be successful.

When you are ready to take the next step and buy your own home, you will need a bond solution.  Rather than going through the process of approaching every financial institution yourself, why not use a bond originator?  With their experience and a good track record in securing affordable finance, the process will be quick and painless.  You will be guided on each step of the way.  It will result in the best possible financial deal available.

Wouldn’t it be nice if the hardest thing about buying a new home is deciding where to put your furniture?  With a bond originator like Homeloan Junction, finding a bond solution is easy.

How can you pay off your home loan faster?

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The process of buying a home, especially a first home, is exciting and scary at the same time. South Africans can get caught up in the hype of affordable residential home loans based solely on the monthly payment. When you only factor in the monthly outlay and mentally dismiss the total cost of a home, you do yourself a disservice.

The good news is that disclosure laws are in place to protect you and you have your estate agent available for guidance. Best of all, when you secure a home loan through Homeloan Junction, you get the best possible deal.

  • Our experts guide clients through the application process, explaining everything as you go along.
  • Homeloan Junction submits applications to 9 different banks. You just have to choose which deal suits you best.
  • We are experienced in negotiating with the banks on your behalf to get the best rates.
  • You are relieved of replicating all the paperwork.
  • You will know the monthly payment and you will also know the total cost over 20 or 30 years at various interest rates, so you can choose wisely.

By the time you actually sign the final paperwork your mind may be in a whirl. You just want to get through the signing, get the key and go home. You need time to let the meaning of it all settle in.

It’s time to take another look

When all is said and done, your residential home loan is an investment.  Life gets busy and paperwork gets buried. Still, you need to periodically review your loan terms. You need to track what kind of return you are getting on this investment and improve that return if possible. You also need to know if your investment has turned into a liability. Listed are a few markers to check:

  1. Do the maths and find out how much you have paid to date toward interest and how much to principal? You may be surprised. If you need one, your lender will provide an amortisation schedule so you can track these amounts by month.
  2. Get a list of all similar properties that have sold in the last 90 days. Your estate agent can help with that. This will give you an idea of what the market value of your home is today.

    – Hopefully it is worth more than your total home loan balance so you are making money.  If you sold now, you would realise some profit.
    – A drop in value is cause for concern because your investment has turned into a liability. You would lose money if you sold now.
    – If there is no movement up or down, you are safe for now. You are not making money but you are not losing either. If you had to sell you could expect to break even.

  3. Subtract your home loan principal balance from the total loan balance. That number could be another surprise but that is what it is costing you to borrow the money to buy the house.
  4. If property values do not increase over the term of your loan, your profit will be absorbed by loan fees. Shorten the loan term to save your profits.
  5. Since interest is figured on a daily loan balance, the faster you lower the balance the shorter the loan term. Shorten the term by paying more toward principal each month.

Shorten the term of residential home loans

There are several ways to shorten the term of your home loan so you pay less for your home. Any amount you pay above your monthly payment goes directly onto your principal.

  • If you pay off another loan, like credit cards, student loans or vehicle financing, divert that money toward your home loan every month. You will cut your loan term by years. That is a lot of interest you will not be paying!
  • Make home loan repayment a top priority. Know exactly how much you are paying for your house if you do not make extra payments. Then, commit an additional, firm amount each month. Do the maths to find out how much you will be saving on the purchase price of your house.  The numbers could be big.

The simple truth is any extra money South Africans put toward the principal payment shortens the loan term and saves money on interest. People are always tempted to use extra money for nonessentials. That is why you have to make a loan payoff plan and stick to it. Rather than wasting the money, plan what you can do with the significant savings. You’ll be amazed by how much you can save if you pay your residential home loan five or ten years sooner than scheduled.

Work out if you can Afford your Dream Home

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Calculate how much you can afford to spend on your new home with a bond repayment calculator. We have one on our website at Home Loan Junction that will give you the numbers you need to know before you shop for your dream home.

Your estate agent will be able to help you more effectively because you already have an idea of what price range you can (realistically) afford.  It makes little sense to look at homes you cannot afford to buy – that is just a waste of time for everyone, and can leave you heartbroken.

When you have found your new home, Home Loan Junction will help you find the best deal possible for your bond. As a leading South African bond originator, we work with multiple banks to tailor your home loan to your needs and wants.

How Much Can You Afford to Pay Monthly?

Follow these 6 easy steps to establish how much you can pay on your next home:

  1. The first step is to calculate the combined gross monthly income of everyone who will be an owner of the home. Using our handy affordability calculator. For instance, if a married couple is buying the home, and both are employed, then use both incomes.
  2. Your gross income is the combined amount both of you earn each month before any deductions. That amount goes in the gross monthly income box on the bond repayment calculator.
  3. The next box on the calculator is for net income. Combine all incomes after deductions. That is your combined net income.
  4. The bond repayment calculator asks you for your total monthly expenses. Include the total of your monthly payments for credit cards, car payments, store card loans, and anybody else to whom you owe money. Do not include your current housing payment, utilities or homeowners insurance. Total it all up and put that number in the box for total expenses.
  5. Now subtract your monthly expenses from your net income. That is your net surplus income. In other words that is how much money you have available for housing, utilities, food, and other necessary living expenses.
  6. Plug-in the number of years you want to repay the bond and the interest rate. The calculator will figure the monthly repayment amount you can afford and the maximum price range of homes you can afford to buy.

What Will You Pay?

If all goes according to plan, your estate agent will do a superb job of understanding exactly the amenities you want in a home. The house showed to you is your dream home and it falls within your price range.  Now what?

Once you reach a price agreement with the seller, five factors will decide your monthly payment and the total amount you will pay for your home. Use the bond repayment calculator to explore how much you will pay each month:

  1. Down Payment: Use the bond repayment calculator to see how much your payment will be if you make a larger down payment. Of course, the more down payment the smaller the monthly payment. However, maybe you would like to hold out some money so you can pay cash for landscaping or furniture. The decision is pure personal preference.
  2. Interest Rate. Change the interest rate and you change the payments. The better your credit and the bigger your down payment, the lower your interest rate is likely to be. Change the interest rate in the calculator and see how the payment changes. The amortisation calculator will show the amount of each payment that goes to reducing your loan and to interest.
  3. Bond Repayment Term: Spread your payments over 20 years and they will be larger. Spread them over 30 years and the monthly payments will be smaller.  Again, it is personal preference. However, you will pay far less for the home if you pay it off quickly because you will be paying less interest.
  4. Your Credit Rating: The better your credit rating the more flexibility you have in the other three factors.
  5. Your Lender: Homeloan Junction is familiar with South African lending practices. We know how to capitalise on the benefits offered by each bank. We match you with the best possible home financing terms available. The buyer does not have to run around trying to find the best terms.

Homeloan Junction focuses on one type of financing and that is home loans.  With our handy bond repayment calculator, you can know how much house you can afford, the monthly payment, and how long it will take to pay. Home buying will be less traumatic because you are now an informed shopper with a team of experts on your side. We suggest using our multi-faceted bond repayment calculator before you even start looking for a home.

How Real Estate Agents Can Help You

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Homeloan Junction is an established home loan origination company that has been in the property market since 2003. Our relationships are of the utmost significance to us and we focus on carefully nurturing them. Our invitation to join us extends to customers, banks and financial institutions, conveyancers and estate agents, all of whom we work closely with to ensure you receive outstanding service with long-term benefits.

Why Join Homeloan Junction?

You will begin your one-stop-business-journey to purchasing a new property when you join Homeloan Junction. Our experienced consultants keep themselves informed of the latest trends and developments in the property market which enables us to advise you according on your specific needs.

Our business connections allow us to submit your loan application to 9 different banks. Our knowledge of their products will make certain that you receive the best deal possible under our guidance. We will assist with all the paper work and other details involved, saving you time, effort and the frustration of dealing with a number of different banks.

Perhaps you have not yet set your heart on a property but have been exploring the size of the bond you would qualify for to enable you to look to buy in the correct price bracket. Our online calculators will enable you to estimate the affordability, savings, bond and transfer fees of your future homeloan. We have much information to help you in making this significant decision. Please take time to browse our website.

Working With An Estate Agent

We work closely with estate agents and value their knowledge, experience and assistance in finding you, the home of your dreams. Here are 5 tips to getting the most from your Estate Agent:

Tip #1 Do You Come First?

Working with the right estate agent is important as buying a home is a sensitive and emotional experience. You need to feel comfortable with the agent and confident that they understand what your needs are. You will soon pick up if the agent you are working with identifies with your requirements and the type of home you wish to live in. If you are repeatedly shown unsuitable property, they don’t understand you. It usually pays to stick with one agent that you work well with until you find your purchase.

Tip #2 Do They Have A Good Track Record?

Make sure that you chose a reputable real estate company, and an agent, with track records that they are proud of. Don’t be afraid to ask about accreditation and test their knowledge of the area and prices by asking about property recently sold. They are normally linked to multi-listing which gives them a broad base from which to choose suitable homes to show you. They might even email you a number of properties to look at and receive your feedback on to better gauge your preferences and taste.

Tip #3 How Good Is Their Local Knowledge?

There are advantages to working with someone who specialises in an area and knows it well. They will have knowledge on the public transport, schools, shops and sporting facilities that most families will no doubt need. A worthy agent will be on good terms with other agents and realise the benefit this holds to those in the industry. They will also know about all the homes for sale, those about to be sold and what other agencies have on their books. In a case such as this, they will share the sale and happy to do so if the client finds their home.

Tip #4 Are They On Your Side?

Agents work on commission and in most cases represent the seller, which is understandable as they pay the estate agent’s fee. Be sure that the agent you chose to work with will also act for you by putting forward your questions, negotiating with the seller and disclosing any relevant information. An estate agent is required to act on your instruction but sometimes will impart alternative suggestions for you to consider. Real estate agencies have recourse to legal advice and they will advise you when they feel that you need a lawyer should things not run smoothly.

Tip #5 Do They Have Helpful Connections?

A good estate agent will be knowledgeable about municipal requirements if you wish to make alterations or carry our renovations. They will also know of qualified engineers, builders, contractors and workmen to refer you to which would be helpful if you are new to the area.

A Sweet Ending

Finding an estate agent who will take an interest in you and put in every effort to see a happy client at this stressful time in their lives is really the cherry on top when it comes to house hunting. To make sure that you don’t end up in a gingerbread house, let Homeloan Junction help you secure the best home loan and terms available. We have a 70% approval rate on all home loans we put forward.

Homeloan Junction’s head office is situated in Gauteng but we have branches and consultants in 7 provinces and in cities throughout the country. You could even join Homeloan Junction and enjoy a career as an independent homeloan originator under our training, guidance, using our products and network.

INTEREST RATE REVIEWS AND THEIR IMPACT ON OUR HOMES

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A very interesting week last week. Two interest rate reviews, one up and the other, sideways.

But before we think about the effect of this on our home and homeloan businesses, here’s a quote from Ayn Rand to encourage you:

“In the name of the best within you, do not sacrifice this world to those who are its worst. In the name of the values that keep you alive, do not let your vision of man be distorted by the ugly, the cowardly, the mindless in those who have never achieved his title. Do not lose your knowledge that man’s proper estate is an upright posture, an intransigent mind and a step that travels unlimited roads. Do not let your fire go out, spark by irreplaceable spark, in the hopeless swamps of the approximate, the not-quite, the not-yet, the not-at-all. Do not let the hero in your soul perish, in lonely frustration for the life you deserved, but have never been able to reach. Check your road and the nature of your battle. The world you desired can be won, it exists, it is real, it is possible, it’s yours.”
– Ayn Rand

On 28 January, the Monetary Policy Committee of The South African Reserve Bank [SARB] announced an increase of 0.50% in the Repo rate, which will result in the Banks’ Prime lending rate increasing to 10.25% with effect from 29 January 2016. This was the first interest rate review mentioned above.

A few comments:

  • I heard a leading economist interviewed this week and he would not be drawn into quantum of the interest rate hike in 2016, whether 1 or 2%, but he did make the point that it would be well considered and managed.

  • I did stick my neck out in the last blog and say 2 % this year as I feel the Rand and inflation will have the final say on how much.
  • As regards the Rand, it was wonderful to see it pull back; from the mid-R16 range, to about R16.26 to close around R16.18 on Friday. So the market was factoring in a significant rate hike on Thursday and got it.
  • We are between a rock and a hard place with the interest rate. From a growth perspective, we cannot afford rising rates. Both indebted business [Employment] and consumers [Affordability] will find the going tough. Harming either constituency will harm the country. Sadly, though, with the Rand slide by about R3 from R14 to R16 (and as high as R17) to the US$, Inflation will rise. The 6 tons of Maize being imported does nothing to improve the situation. Last year, Inflation averaged 4.6% and in 2016, is expected to average 6.8%. The SARB target range is 3-6%.
  • Remember, absolute versus relative maths. “Only 2.2%” does not seem like much Inflation, but it is 48% [2.2/4.6*100] more Inflation than in 2015. In turn, the 0.5% rise in rates is not “just half a percent”, but forms part of a 1.75% rate rise off the lowest base, 8.5% on 20 July 2012,  since 15 November 1973 [See the Chart attached] when it was 8%. Therefore in relative terms, the cost of interest has risen since July 2012 by 21% in three and a half years. That’s a lot more interest being paid.
  • The process is being well managed and is simply unavoidable. The SARB has done the responsible thing and protected the Rand exchange rate which has been in a mess even before El Nene given Emerging Markets battling a very strong US$. By the way, a stable exchange rate to all major currencies is one of the core functions that a Reserve/Central Bank executes. In addition, if our Finance Minister has any chance of staving off a Non-investment grade rating by the Rating Agencies, he is going to need a strong, independent SARB doing what is right for Inflation. Also, by the way, his fight with SARS is also very important as they need to collect the revenues in order to keep Government stable. In the absence of efficiency in SARS, taxes will go up much more in February.

So, to sum it up, the rate rise was good for SA Inc, Inflation and the Rand/$ exchange but bad for Debt users. Overall, probably unavoidable after December 2015. I sincerely hope my 2% rise (1.5% remaining) proves very wrong for us. Watch the Rand, Inflation, the Drought and Oil.

With less detail, the US FED decision to retain the US interest rate where it is was is also them saying they do not want to dampen the US economy. That is really good news as:

  • The stock markets accepted that as meaning the US economy remains strong enough for about 2% growth in GDP. Hence the global markets rallied somewhat.
  • That fact makes up for China and provides them some headroom to work through their issues.

So, overall, a good week for rates in a fragile environment.

So what about us, you ask?

FNB put the house price rise for 2015 at an average of approximately 6.4%. that would give a real price rise of almost 2% after Inflation. ABSA, in their January 2016 synopsis expects an approximate 5% rise in 2016 and this will result, as we can expect from the rise in Inflation, in approximately -1.8% decline in real house prices this year. They quote a number of factors but the one that would concern me the most is weak Consumer Confidence. But please remember, the reversal in the real house price growth rate is because of the large increase in inflation and not necessarily because less homes are being sold.

That means that house prices will continue to rise so the question then is:

–        What volume will be sold?

–        How much of that will I, as the estate agent/principal, sell?

My sense is that less houses will be sold this year and the affordable homes will continue to dominate sales. My reasoning is simply that affordability will be affected by higher interest rates and Inflation will eat away little by little at our disposable income. I expect some tax increases but I’m not sure if the Finance Minister will target the rich or make them across the board. I don’t think VAT will rise as it is just too sensitive – we’ll see.

The last question remains yours to answer. When all the pundits have had their say and I have written mine, you must decide if you are going to list less, show less and sell less. That answer remains with you and your energy and enthusiasm. Believe all you read and internalise it, and anyone could predict your outcome – sales will slide.

Read it, think it through and find the way around obstacles with optimism and determination, not letting  the hero in your soul perish, and you will enjoy success. Check your road and the nature of your battle. The world you desire can be won.

Homeloan Junction has made that decision and will be there to support you in yours.

Yours in Property.

Jack

What is Bridging Finance?

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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

What will my monthly bond repayment be?

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Budgeting in general can present major headaches for people but a bond repayment calculator, if used correctly, could help to ease the pain. Coming up with a realistic budget — whether for the purchase of a new home, or for the necessary control of household and monthly expenses or the entire expenditure plan for a whole country — can bring its fair share of headaches, even when you know it will be implemented in the most skilful and savvy way. So, don’t feel disheartened: you’re not alone if you’re facing the tiresome task of working out your budget.

If you’re planning on buying a house, you’ll need to know how much you can budget to spend on the loan each month. And you’ll need to know this before you go house hunting if you want to avoid disappointment. Imagine spending valuable time finding a dream home, only to discover that it is out of your price range! Luckily, Homeloan Junction offers you a simple, online tool to make this easier for you. Try their free bond repayment calculator to see if you can afford the house you love

How a Bond Repayment Calculator Works

When you are shopping for a new home, the last thing you want to discover is that the amount you thought you could afford is actually quite a bit different to the amount you can realistically afford each month. It’s best to find these things out before you go charging headlong into the process – and certainly well before you sign any Offers to Purchase.

Nowadays you can explore your options in the privacy of your own home, with the help of a bond repayment calculator. Having the benefit and independent use of an accurate bond repayment calculator in front of you, can help you create a more realistic assessment for the way forward. Remember, when you make your calculations, it is important to take into consideration that financial circumstances can change, so be sure not to stretch your budget too far.

Go ahead and test the bond repayment calculator tool on Homeloan Junction’s website. You’ll see that in less than one minute you will be able to quantify the amount of the bond you are eligible for … and the amount you can realistically afford.

Easy-To-Use Bond Repayment Calculator

You also have other calculation options over and above the bond repayment calculator available at your fingertips. With the useful calculators on the Homeloan Junction website, you can work out how much you will be able to afford to pay, you can project bond and transfer costs, and also work out how much you could save on interest with a bigger deposit. The website is well-optimized which means you’ll experience no problems with speed, and you’ll have the answers to your questions in a few minutes. Also, the calculators are simple to use.

Whether you are working out a budget that includes a new bond or re-evaluating the way forward with existing bond repayments, after spending a few minutes with these versatile tools you will soon see that they are quite easy to navigate and apply to your own, individual needs.

Save More and Pay Less

The most successful and accurate assessment of how much you can afford on a homeloan will come from thoroughly doing your homework. Don’t stop once you’ve assessed how much you can afford to pay as a monthly instalment, research as much as possible about the methodologies that can be applied to see you save more and pay off your bond in the shortest period possible. Banks in general are happy to see you stay with them for longer; after all you are generating streams of income for them. But will this really work for you?

A successful trick is to pay off your homeloan over a shorter period, but this entails a disciplined approach. Prioritize this expenditure and also seek new ways to add a bit extra to your repayment schedule. This is another reason to keep your budget realistic – give yourself the option to pay more into your mortgage each month, allowing you to save more and pay less.

Do you need assistance in determining your ideal homeloan amount? Even if you have used the useful bond repayment calculator to find out how much you can afford, you can also talk to one of the qualified and experienced consultants at Homeloan Junction to help you make accurate assessments.