Perhaps its wishful thinking but while it is a good time to buy property, at least according to estate agents, many would-be buyers cannot obtain home loan finance.
According to Rawson Property Group chairman, Bill Rawson, home loan and other bank loans customers should be rewarded and recognised in the form of loyalty, for example.
He explains that many people are loyal to their banks and have all of their financial transactions in one bank in many instances, products such as fixed deposit accounts, credit cards, household and car insurance, life assurance, wills and estate management.
They also use them for Johannesburg Stock Exchange share deals and sometimes even for funding their children’s education on a long-term loan.
He reckons with tough times in obtaining home loan finance, these customers deserve above average treatment, especially when it comes to home loans.
“This type of loyalty should, I believe, automatically qualify them for a rate of 0.5 to 1 percent lower than standard bank home loans and their application process should also be simplified,” he says.
While different bank departments are often unaware of what products customers have within the bank, if they looked into it, this would perhaps see an improvement in home loan applications of their loyal customers and also enable people to own property.
If you are thinking of buying property in 2014, it is always better to know what your price range is before you go searching for your dream home.
Richard Gray, chief executive officer of the Harcourts Real Estate group, says for most people this will be determined by three factors:
1. The size of the home loan for which you can qualify
2. The amount of cash you have available for a deposit and transaction costs such as transfer duty, bond registration and legal fees
3. The price you actually think is reasonable and realistic in terms of your own housing requirements and other financial goals.
“Although some buyers can pay cash for a property, by far the majority need to obtain a bond from a bank to finance their home purchase – and they may not be able to borrow as much as they think.”
Gray explains that banks determine how much they are willing to lend to a particular borrower after examining his or her credit record, employment history and current financial situation.
Under the strict rules of the National Credit Act, they have to ensure that the borrower could comfortably afford the new loan repayments in addition to any existing financial commitments and living expenses, and would not become over-indebted even if interest rates were to increase.
He points out that even people with high incomes might not be able to obtain as big a home loan as they might expect, if they already have many other debts that take a chunk out of their disposable income each month.
Would-be buyers can quickly get a sense of what size home loan they might be able to obtain by using the calculator and can also go through a pre-qualification process with an originator before house hunting, he says.
“Having the certificate gives buyers an edge in price negotiations because it gives the seller confidence that they are making a genuine offer and that there is a high likelihood of the bank approving the home loan application.”
Meanwhile, he says, those who don’t have many debts and have saved up cash for a deposit and transaction costs might actually be able to afford a higher-priced property than they originally thought, because the size of the home loan they require will be reduced by the amount of the deposit.
However, he cautions that they might do better to still opt for the type of property they initially had in mind, take a smaller loan and keep their monthly home loan repayments as low as possible.
Smaller bond repayments certainly give borrowers more leeway when interest rates increase, and often also give them the ability to pay their home off more quickly. Smaller homes also cost less to run and maintain.
In addition, he says everyone has their own ‘comfort level’ as far as debt is concerned, and buyers should think about this ahead of time so that their home purchase does not become a burden instead of the pleasure it should be.