| Give Your Children a Boost Up the Property Ladder |
| The South African property market currently favours buyers, with improved affordability and low interest rates providing potential home owners with the perfect opportunity to start climbing the real estate ladder, especially young adults looking to make their first purchase. However, many young first-time buyers are not able to take advantage of favourable market conditions due to the fact that they simply cannot afford a deposit. In select cases however, their parents are able to assist by providing them with money for a deposit, whether as a gift or a loan, and can potentially gain significant financial benefits in the long-term. According to Kevin Mountjoy, National Sales Manager at ooba, many young adults can afford home loan repayments, but are unable to secure a home loan as they don't have a sizeable deposit available. The average deposit is 14.9% of the purchase price and as banks tend to look favourably at buyers with a deposit, insufficient deposit size is one of the main reasons a bank will decline a home loan. He says that property has proven to be a secure long-term investment and as a result, it is advisable to enter the property market at an early age in order to benefit from the long-term prospects of growth. "Parents inherently want their children to succeed in life and, after education, helping your children invest in property is another way of securing financial security. A property in your child's name will not only provide them with an asset that will appreciate in value over a period of time, but will also provide them with a good financial platform from which to grow." Mountjoy advises that parents who have decided to assist their children with a deposit should ensure that they are doing so correctly in order to maximise the advantages of the purchase. "When lending children money, parents can either raise capital via a second bond or take money from their savings, should they have sufficient funds. From an investment return perspective, it is beneficial to lend money from savings instead of financing a second mortgage, as interest rates are much higher for debt than what one would be earning on their savings. "This, however, depends on the extent of savings and where they are invested. Should extracting the money from savings not be an option, a second mortgage should be the next option as interest rates on home loans are generally lower than on unsecured loans such as personal loans." Mountjoy says that when taking an advance on a home loan, parents must be careful that they do not worsen their rate concession on the entire loan, given that home loan interest rates have moved significantly from a few years ago when "prime less" rates were common. "For example, if parents have an existing R1 million outstanding home loan at prime less 0.5% and request a further advance of R100 000, the bank is likely to adjust the interest rate up on the entire R1.1 million. However, if parents have excess funds available in the home loan, accessing these would generally not impact the interest rate that is charged." He says another option is to give the deposit money as a gift. "Parents should be aware of the tax implications of such a gift. Funds given as a gift that exceed R100 000 during any tax year are subject to a donations tax, for which the donor, in this case the parent, is liable for. "Another benefit for children lending money from their parents for a home deposit is flexibility with regards to payment terms, as parents can request that the interest is paid back after the initial lump sum has been repaid." When deciding which path to follow, it is important that all parties involved are comfortable with the arrangement. "It is advisable to draw up a formal document to ensure all family members are on the same page as to whether the money is a gift or a loan, and what the terms of the agreement are, for example what interest will be paid and when the money will be paid back. While it might seem a bit extreme when dealing with family, it is important that this is drawn up and signed by all parties so that there are no misunderstandings down the line," concludes Mountjoy. |
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| ooba Reports Significant Loan Growth in February 2012 |
| ooba, South Africa's leading bond originator, has recorded a significant increase in the number of home loan applications and approved loans during February 2012. The company revealed that the value of home loan applications during February increased by 48% in comparison to February 2011. According to Saul Geffen, CEO of ooba, this is the best monthly performance recorded since March 2008, over four years ago, but is still 48% of the applications value recorded at the peak in May 2007. The statistics also revealed that February was a record month for approved home loans. Geffen says that the value of approved home loans has increased by 32% year-on-year. "We have not seen these levels since May 2008, but these figures are still 30% of the value recorded in May 2007." He says that the average approved bond size also increased by 10.9% to R 738 835 in February 2012, from R 666 124 a year ago. Geffen says that he expects growth to continue driven by ooba's increased market share, as well as organic growth from the improved property market and lending conditions. "In addition, low interest rates, coupled with subdued property price inflation and relaxed deposit requirements, have resulted in an influx of applications from potential homeowners." He also attributes the growth to the value proposition that mortgage originators offer consumers. "Consumers understand that in today's tough lending environment, using a mortgage originator significantly enhances the chances of securing home loan approval, and on better terms" concludes Geffen. |
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| Are You Financially Fit Enough to be a Property Owner? |
| Factors such as subdued property price inflation and low interest rates - which have improved affordability and reduced the cost of servicing a home loan considerably - indicate that South Africa is currently a "buyer's market" when it comes to property, meaning that consumers can cherry pick from the best potential property investment bargains on the market. However, although now is the perfect opportunity to start climbing the property ladder, many consumers cannot afford to do so because they are not financially fit enough to take advantage of this opportunity. Before any major sporting event, such as the Cape Argus Pick 'n Pay Cycle Tour, all cyclists need to ensure that they are fit enough to take part in the race. This usually includes training prior to the event and ensuring that all equipment is in good condition for the race. According to Linda Rall, KZN Provincial Manager at ooba, applying for a home loan is no different in that consumers need to prepare adequately and be in the best possible financial condition before entering the property market. Rall says that potential home owners should evaluate their financial "fitness" before shopping around for a home to ensure that they are aware of what the property buying process entails and if they can afford the many costs involved. "Potential home owners should consider prequalification as a way to evaluate their financial status. By doing this, applicants' credit profiles and affordability are checked upfront to ensure they qualify for a loan. Prequalification will also give buyers a clear idea of their budget range, which allows them to house hunt accordingly." She explains that affordability is calculated on numerous factors. "Prior to the National Credit Act, affordability was a simple calculation based on 30% of an individual's income. Unfortunately, these days the calculation is not as straightforward as banks use a combination of the 30% of the fixed income rule and Nett Surplus Income (NSI), which reflects an individual's income after all their deductions, such as medical aid and account payments. This is to ensure potential home owners can afford their home loan repayments, as well as all future expenses associated with a new home loan, such as rates and taxes, home insurance and repairs. " Rall says that applicants will need to provide a credit record and details of their credit repayment behavior and conduct. This is then used to evaluate the applicants' risk profile when deciding on whether to approve the home loan. She says that according to the Credit Bureau Monitor's 2011 3rd quarter report, 8.83 million South Africans have impaired credit records. "Many of these consumers aren't even aware that they have impaired records and that simply not paying an account installment on time will affect their creditworthiness negatively. "Also, most retail stores and banks' default listings will remain on a consumer's credit profile for two years and any judgment taken against the individual will remain on their profile for five years. For this reason, we advise consumers to have their credit profile checked bi-annually to ensure all debt installment payments are up to date, as a clear credit history is crucial when applying for a home loan." Rall explains that additional factors that banks consider when evaluating a home loan application include, among others, the applicant's current financial situation, whether or not the financial situation will change in the next few years and whether the applicant's income is steady or fluctuating. "In the current environment, it is also advisable to have a deposit available as banks prefer consumers who invest some capital into the purchase. "While each applicant's situation differs, the guidelines are the same for all consumers and by ensuring one's financial fitness, potential property owners are able to increase their chances of a home loan being approved," concludes Rall. |
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| Costly Property-Related Errors and How To Avoid Them |
| Given that the average house price in South Africa is approximately R800 000 and that most people take out a hefty bond to finance their home, home owners would be well advised to prevent additional property-related expenses by avoiding simple oversights. This is according to Jenny Rushin, Provincial Sales Manager at ooba, South Africa's leading mortgage originator, who advises that consumers can safeguard themselves financially by taking note of five of the most common property-related mistakes made: 1. Shop around before securing a bond Shopping around with multiple banks and negotiating the best deal can make a big difference to your monthly bond repayments. A bond originator is able to assist by submitting an application simultaneously to multiple lenders, ensuring a greater chance of approval and on the best terms. Originator consultants understand the different credit criteria and requirements of each bank and are able to provide independent advice to potential home owners. Additionally, duplication of documentation is avoided ensuring fast approvals while benefiting from a single point of contact to manage the entire process. A bond originator's service is also at no cost to the homebuyer and without any obligation to accept a particular loan sourced. 2. Under-insuring your home and contents If you've made any improvements to your property since taking out your home insurance, it will have changed the value of your home. Significant changes to your house will increase the value it should be insured for, so it's important to keep your insurer up to date with any changes. Also, don't forget your contents insurance as most people often underestimate how much their belongings are worth. If you purchase new furniture or electronics, then you should review your contents policy (at least annually) to ensure that you have adequate cover. 3. Failing to take basic steps to secure your home It's all very good and well to have a home contents insurance policy, but if you don't take the appropriate measures to secure your property, you may find yourself seriously out of pocket if you are burgled. If your home fails to meet your insurer's security requirements, then your policy will become void, even if you've paid premiums for years. Don't waste your insurance premiums or, worse, face having to pay to replace stolen possessions. Read your contents policy carefully and ensure your home meets its minimum security requirements. 4. Using a sub-standard contractor Substandard home improvements can cost SA consumers millions every year and can actually reduce the value of your home, or worse, cause expensive damage. Unfortunately, the process of sourcing a reliable builder and managing a building or renovation project can be extremely stressful, but if done incorrectly can add lasting financial stress for a homeowner. To safeguard yourself always remember to do a thorough background check on anyone who is going to take a hammer to your home. This includes requesting to see proof of their building credentials which can include memberships such as the Master Builders South Africa (MBSA). 5. Spending on improvements that add little value to your home Not every improvement will add value to your home. For example, new carpets costing R50 000 add very little value to your property's overall worth. However, the right paint job can add up to 10% to your home's value. Your first home improvement priority should be to ensure the property is structurally sound. Roofing, windows, damp proofing and the electrics should all be in top condition and if they're not, should be at the top of your home improvement list. Once you've taken care of the structural side of things, you can move on to improving the look and feel of your home. Have a discussion with your local estate agent to get some advice about what features can add the most value to your home. |
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| Residential Property Prices to Trade Sideways in 2012 |
| It is expected that residential property prices are likely to continue to drift sideways in 2012, impacted by poor economic growth. However, according to CEO of ooba, Saul Geffen, with interest rates remaining at historically low levels, which may drop further in 2012, home buyers and home owners will continue to benefit. Geffen says it is expected that the South African residential property market will experience limited real growth in property prices in 2012, impacted by the poor economic growth environment. He says that 2011's third quarter economic growth figures have confirmed that South Africa has once again had little real economic growth, which should mean further pressure on the fragile labour market and negative real disposable income growth. "All of this will lead to limited purchasing power. Whilst possible interest rate easing is possible, interest rates are not likely to make a major difference to residential property demand in 2012. "However, the reduction in interest rates of 650 basis points since 2008 has improved affordability and reduced the cost of servicing a bond significantly. The record low interest rates, coupled with subdued property price inflation, increased bank approval rates and lower deposit requirements, will continue to positively influence the property market." Geffen says that the current economic climate is the biggest challenge currently facing the property market. However, there has been consistent improvement in the bank lending criteria in 2011. "The ability to obtain financing is one of the biggest drivers in the property market, so the consistent improvements are a positive indicator for the property market going forward. "In addition, ooba has recorded significant growth in the number of applications and approved loans in 2011 and this growth is expected to continue. The rise in applications and approvals are attributed to the continued relaxation in lending criteria by the major lenders as well as ooba's market share growth. "The company's statistics reveal that the number of bond applications during November 2011 increased by 36% from November 2010. The statistics also revealed that November was a record month for the value of approved home loans, which increased by 33% in comparison to November 2010. The value of approved loans in November is the highest recorded since May 2008, over three years ago." He says that in today's tough lending environment, the origination value proposition is stronger than ever. "A bond originator is able to shop the application to multiple lenders so that homebuyers are assured of a higher probability of approval and on competitive terms. According to the latest ooba statistics, nearly a quarter of applications that were initially declined by one lender were approved by another. These applications would remain declined if they were not submitted to other banks post the initial bank decline," concludes Geffen. |
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| SA Consumers Urged to Use 13th Cheque to Pay Off Homeloan Debt this Festive Season |
| Employees fortunate enough to receive a bonus this December should consider putting a portion of their '13th cheques' towards paying off their home loans, before indulging in festive season spending. This is according to Craig Deats, Executive Director, Sales and Distribution of ooba, South Africa's leading bond originator. "Although consumers work hard throughout the year to earn a bonus and therefore deserve to enjoy it, finding a balance between saving and indulgence is very important, especially at this time of year." Deats advises that consumers deposit some of their annual bonus into their home loan. "It is a great Christmas gift that will result in large savings over the term of the loan." For example, assume a home owner paying off a bond of R500 000 with an interest rate of 9% over 20 years, gets a bonus of R17 000 after tax. "Paying half of the bonus, i.e. R8 500, into the mortgage could reduce the term of the loan by up to ten months, equivalent to a saving of roughly R45,000 in instalments. "It is always useful to have some extra cash over the holiday period, but even putting half of your bonus into your bond can mean significant savings over the term of your loan." Deats says while this option is definitely the most sensible option for forward-thinking home owners, it is sometime difficult to part with the hard earned bonus, especially if you are not seeing immediate benefits. "Home owners need to keep the long term benefits in mind. Instead of spending the entire bonus on Christmas presents or a short, festive season break, remember that the long term savings could contribute to something much more significant, like a trip abroad." He says that potential home owners should also look to save their 13th cheque lump sum towards a mortgage deposit, due to the numerous economic benefits a deposit creates for prospective home owners. "Banks look favourably at buyers with a deposit and will be more open to negotiate a competitive interest rate on a home loan, as a result of the reduced risk to the bank. Besides improving your chances of getting your home loan approved, a bigger deposit could result in a more favourable bond rate that will save you in interest over the term of the loan. "As a home loan is paid back over a long period, generally between 20 and 25 years, even a small deduction in the interest rate on your bond, can save you thousands of rands in interest payments over time," concludes Deats. |
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| Tips: How to Prepare Your Property for a Show Day in a Competitive Market |
| First impressions are always important, whether it be for a job interview or a meeting with your future in-laws. The same applies for showing your property to potential buyers. When putting your house on show, it is important to highlight your home's best features to ensure that the best aspects of the property stand out. According to Jenny Rushin, Western Cape Provincial Sales Manager at ooba, South Africa's leading bond originator, selling a property in the current sluggish market can be challenging, but home owners can increase their chances of a sale by avoiding common selling mistakes and maximising on their home's potential. "Buyers are becoming far fussier and are no longer settling for less than what they truly want, which means it is vital for sellers to make their homes as appealing as possible.¿ Rushin says in some cases it only takes a few tweaks to a property to make a vast difference to a potential buyer's perceptions. "Sellers who effectively 'stage' their homes are more likely to sell their home faster and at a potentially higher price as buyers want a home that is ready to move into. Many buyers are less likely to visualise the potential of the home, so it is in the seller's best interest to show off and maximise the property's best features. "It is a good idea to spend a bit of money to make sure homes are as presentable as possible. It often does not cost a lot and even basic upgrades can make a big difference when it comes to getting the price you want." Rushin offers the following guidelines on how to prepare your home properly for a show day: ¿ Price it right Price is the biggest inhibitor to any sale and it is important to set the price at what the property is actually worth, and not what you think it is worth. In order to value your property correctly get in touch with three agents who are the area experts and ask them for a valuation. ¿ Start with a great impression The exterior is the first aspect of the property that a buyer will notice. Sweep the walkway, mow the lawn, trim hedges, weed flower beds and plant a few conspicuous shrubs so that it looks well-kept and tidy. If there is space, flower pots next to the front door make for an inviting entrance. Overall, ensure that the exterior of your property says "welcome". First time buyers, which, according to ooba, make up 52% of bond applications, are more likely to be influenced by first impressions. It is therefore even more important to ensure your property is welcoming. ¿ Market your home You can't expect to sell your house if you keep it a secret. A good estate agent will assist greatly with the sale as they can market your property via their networks and contacts. It is also a good idea to check if the agent is marketing your house online in order to attract potential buyers. By advertising the property on a website such as PropertyGenie.co.za you will create maximum exposure and ensure that you get enough foot traffic through the house. ¿ Make yourself at home Allow the buyer to walk around the house on their own to explore, as they are less likely to discuss the house or view the property thoroughly if you are following them around. Give them space, but let them know that you are there should they need anything. ¿ Lighten up Gloomy, dark houses are a big turn off. Ensure that your house is as brightly lit as possible ¿ open all the blinds and windows and make sure that all of your lights work for testing. Cut trees and bushes that may obstruct light from the outside and add new lamps inside if more light is needed. ¿ Check the temperature Ensure that the temperature inside the house is comfortable and inviting, as to give the potential buyer more of a reason to linger, especially on hot or cold days. ¿ Maximise space Make sure that your furniture fits the space. Buyers will think "small" if your furniture is oversized or will struggle to imagine what a space can be used for if it¿s empty. Barren space can also make the room seem smaller than it actually is. In order to make the best use of a space, select furniture that will fill gaps purposefully. ¿ Setting the mood Ambient lighting, soft music, books, accessories and scented candles can create the right atmosphere. Creating an atmosphere of elegance and sophistication makes buyers feel they are looking at something special. Good illumination equals cheerfulness, while poor lighting can give a rather depressed ambience to any home. Flowers are an easy and cheap way to freshen up any house - placing a couple of vases of flowers around the home adds a real sense of style and will brighten up any room. ¿ Declutter, declutter Toys, laundry, old magazines and other items should all be tidied away. Clutter makes spaces look smaller - and a messy home is a big buyer repellant. Also, tidying up doesn't mean you should toss everything into a cupboard as potential buyers are likely to open cupboards in order to get a sense of the storage space. ¿ Do basic repairs The idea is to make your home more appealing to a broader range of sellers. Minor jobs can improve the finish of your home with little expense. This could include touching up paintwork, filling cracks, regrouting, straightening cupboard doors, fixing dripping taps or cracked panes of glass, as well as replacing or polishing door handles. ¿ Lastly and most importantly ¿ clean! Make sure the entire house is spotless, particularly the kitchen and bathrooms. Tacky bathrooms repel buyers and may also make the visitor question what other surprises are tucked away and what else is in poor condition. Bathrooms can easily be spruced up with new mirror above the basin, fresh towels and accessories such as hand soap or cream. |
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| Poll Reveals Three Quarters of SA Consumers Unaware of Their Credit Profile |
| According to a recent poll conducted by ooba, South Africa's leading bond originator, three quarters of South African consumers are unaware of their credit profile. The poll revealed that 69% of respondents do not know their credit status. The Credit Bureau Monitor's 2011 2nd quarter report reported that there has been an increase of credit-active consumers with impaired credit records. The number of consumers with impaired credit records increased by 174 000 to 8.80 million, a 0.3% increase quarter-on-quarter. The percentage of consumers with impaired credit records increased to 46.7%, comprising of 18.5% of consumers in three months or more in arrears, 13.9% of consumers with adverse listings and 14.3% of consumers with judgements and administration orders. Kay Geldenhuys, Property Finance Processing Manager at ooba says that these results are very concerning as many consumers that have impaired credit records are obviously unaware that they are on this list, or are there as a result of a "minor" violation. "However, the result is often the same as both a negative credit rating and an adverse listing on your name can seriously hinder your ability to secure home loan finance." Geldenhuys says that when providing credit to consumers, banks look to ensure that their investment in you is safe. "The riskier the investment, the less likely that banks will approve financing for a home loan. Consumers who are unaware of their credit profile are therefore at risk when applying for home loan finance and may have difficulty securing a mortgage." Geldenhuys says that one of the main reasons bond applications are declined is because of the applicants¿ credit profile. "It is therefore imperative for potential home owners to be aware of their current credit profiles at all times. To optimise your chance of securing your desired home loan, make sure you keep a clean credit record by ensuring that all of your accounts have been paid to date before you apply for finance. She says that potential home owners should consider prequalification as an option when shopping around for a home. "This ensures that the applicants¿ credit profile and affordability is checked upfront. Buyers also get a clear view of their budget range and can house hunt accordingly." "Most retail stores and banks' default listings will remain on a consumer's credit profile for two years. If you do choose to close an account, settle the account balance and then contact the relevant credit provider to check that your name and record has been cleared. If you have a judgment on record, clear the account and then contact a litigation attorney to have the judgment rescinded." She says that if consumers do fall behind on payments they should immediately contact professionals who can offer assistance. ¿ooba partners with a credit rehabilitation service provider to offer oobaassist, which helps ooba clients solve their credit record problems. Once your credit record has been cleared, ooba will reapply for your home loan, and you will stand a far better chance of getting the finance approved." Geldenhuys says in that in order to keep a healthy credit score, consumers should follow the following guidelines: -Activate a profile with the TransUnion ITC or Experian as this will allow you to check your credit record 24/7. (http://www.transunion.co.za/home.html; http://www.experian.co.za/) -Obtain at least two credit reports of your profile on an annual basis. -Ensure that you meet your monthly debt repayments on time. Even a payment that is only 24 hours late can be bad for your rating. -Always pay the minimum installment required. |
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| Petrol Price A Growing Factor for South Africans When Purchasing Property |
| Almost three quarters of South Africans consider the price of petrol as a factor before making a property purchasing decision. This is according to a recent poll conducted by ooba, South Africa's leading bond originator, which revealed that 68% of respondents consider rising fuel prices when choosing a home. According to Jenny Rushin, Provincial Sales Manager at ooba, petrol prices are definitely a consideration in households that are dependent on budgets. "Last week¿s 40 c/l increase has resulted in the highest level recorded in three years and a double digit price tag per litre. "The increasing price of petrol is resulting in home owners choosing to live as close as possible to their places of work in order to reduce monthly expenses. Though improving, South Africa's public transport systems are still relatively limited and many consumers still rely on personal transport." She says that this trend has been highlighted in Gauteng by a growth in unit sales and property activity in the Centurion and Midrand areas, which are the mid-points between Johannesburg and Pretoria. "The current fuel price, coupled with the proposed tolling initiatives on the highways in and around Gauteng, will work out to be extremely expensive for motorists travelling these routes to and from work each day." Rushin says that other contributing factors for potential home owners include security considerations and proximity to facilities such as schools and shopping centers, as these amenities usually increase the value of a property investment. |
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| Low Interest Rates Offer Potential Home Owners an Ideal Opportunity to Fix |
| The current low interest rate environment provides potential homeowners with an opportunity to take advantage of a fixed interest mortgage rate, which can effectively save them thousands over the long term. According to Eleanor van der Merwe, Inland Regional Sales Manager at ooba, South Africa's leading bond originator, now is the time to fix your home loan rate. She says that the current prime interest rate of 9% is at a 30 year low, and although some economists are predicting that rates will stay unchanged or possibly drop further, the general sentiment is still that South Africa will move into an upward interest rate cycle next year. Van der Merwe explains that the main advantage of having a fixed home loan rate is that home owners can budget with a degree of security knowing that rate increases over the contract period will not affect their ability to meet their debt obligations. "Fixed rate home loans provide peace of mind and security to borrowers, knowing that they don't have to worry about future interest rate rises." She explains that that in order to qualify for a fixed rate the home loan in question will need to have been registered, as a fixed rate will not be quoted by a bank prior to registration. Banks are at the moment offering fixed interest rate mortgages on a prime plus basis as it costs them to hedge the interest rate risk. "A lender¿s fixed interest rates for a 24-month term currently range from 9.3% to 11.5%. Home owners are usually prepared to pay a slightly higher interest rate for the added security and knowledge that their repayments cannot increase during the term of the fixed rate agreement. Usually the maximum term for a fixed interest rate is two years. "Home owners currently on a variable rate can change to a fixed rate option on condition that their home loan repayments are not in arrears. If the loan is in arrears, the arrear payments will have to be rectified before applying for a fixed interest rate." She says that when considering a fixed interest home loan, potential home owners should conduct a sensitivity analysis on what interest rates increase they are able to absorb. This will deduce if the fixed rate is a suitable option. "A careful assessment with a professional advisor and the comparison of options will verify if the home owner will benefit from a fixed rate," she concludes. |
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