Ask the Expert
Features (Focus Articles)
2014 - Positive Property Market Ways to Improve your Creditworthiness in 2014 Your Rights
Editorâ€™s Note Welcome to the first issue of Property4U. We are proud to bring you an exciting new publication full of interesting features, helpful tips and clever advice from some local experts.
Each month we will publish this in-house magazine bringing you the latest news and information on all property and credit related topics and much more.
I sincerely hope you enjoy our first issue. If you have any comments or feedback, please visit our website to share your thoughts or ask a question.
Reasons for selling property in South Africa
According to the FNB Reasons for Selling Homes report, 21% of homeowners were downscaling with life stage, 20% were upgrading, 14% were selling due to financial pressure, 14% as a result of change in family structure, 12% were moving due to safety and security concerns, 9% were moving to be closer to work or amenities, 8% were relocating within South Africa and only 2% were emigrating. Of those downscaling due to financial pressure, 63% were planning to buy affordable property while 37% were planning to rent. Writing in the report, FNB household and property sector strategist John Loos says upgrade related selling may soon take over from life stage related downscaling as the key reason for selling property. South Africa’s “oldies” have been estimated to be the key driver of property sales in recent times, selling in order to downscale due to “life stage”, he explains. Those downscaling with life stage are not necessarily under financial pressure, and can often bide their time to a certain extent while the market is very weak. However, increasing confidence in the residential property market, as the 2008/9 recession and the last interest rate hiking cycle of 2006-2008 fade in the memories, has seen a rising trend in the percentage of sellers “selling properties in order to upgrade” and this motive may soon be the most common reason for selling property, says Loos. The percentage of those selling due to financial pressure dropped to 14% from 16% in the previous quarter and 20% in the first quarter of 2012. Loos says this is the lowest percentage recorded since the survey began in 2007.
Loos notes that emigration selling is still very subdued pointing out that for now, deterioration in sentiment towards South Africa, along with Rand weakness, still does not appear to have brought about any noticeable renewed emigration surge. “This, we still believe to be due to economic and employment weakness abroad despite some mild pick up in the global economy, hampering job prospects for emigrants.” He adds that this figure has declined to 2% from 2.7% in the previous quarter. – Denise Mhlanga
Finance Minister asks for Budget Tips Finance Minister Pravin Gordhan invites South Africans to send their tips on what they would like to see in the country’s budget. Finance Minister Pravin Gordhan invites South Africans to send their tips on what they would like to see in the country’s budget. The Minister will present the 2014 Budget to Parliament on 26 February 2014 at 2pm. The Budget Tips is an ongoing campaign to garner citizens’ views on economic matters and the public is encouraged to send through tips on matters relating to tax, how government can improve public finance management, boost economic growth and address unemployment. Tips can be sent via National Treasury website, fax to 012 315 5126 of via Facebook: Pravin Gordhan’s fan page/National Treasury South Africa
ASK THE EXPERT QUESTION: I am a first time home buyer and want a fair idea of how much I will be able to borrow?
ANSWER: Affordability is the big question any homeowner to be wants answered. As a guideline, your instalment should not be more than 25% - 30% of your regular family income, before tax and deductions. If you have your own business or earn regular overtime or sales commission, the various lenders will each have their own formula for calculating what they consider as regular income. You will need to provide some proof of earnings.
For a family where both husband and wife work, the calculation might be something like this: •Husband salary (before deductions) R15 700 per month •Annual bonus (divided by 12) R2 000 per month •Wife salary (before deductions) R12 200 per month •Housing subsidy R1 500 per month •Total regular family income R31 400 per month
At a 30% instalment to income, this family should be able to afford a repayment of R9 400 per month, which would mean their maximum loan would be R800 000 based on an interest rate of 13% p.a.
This table gives you the indicative maximum loan amounts and instalments for other income levels.
Gross Monthly Income
a) R12 000
b) R18 000
c) R26 000
d) R40 000
e) R60 000
This table is based on an interest rate of 13% pa - if the interest rate is lower, you can afford a higher bond, and vice-versa. Note that this is only a rough guide; a responsible lender needs to look specifically at the unique affordability issues for each borrower. Responsible credit lenders will therefore take a broader view of the affordability of each borrower into consideration. To do this, they will look at the Household Income compared to the Household Expenditure of the applicant(s) - including all current debt repayment commitments.
If you would like to know with more certainty what you will be able to borrow, you can apply to the lender for provisional credit approval before you buy - this is known as a pre-approval. Then you will have a much better idea of what price property you can afford.
FEATURE (FOCUS ARTICLES)
2014 – Positive Property Market In 2013, South Africa saw slow but steady recovery in the property market, paving the way for greater growth in the year to come. Rhys Dyer, Ooba CEO says “the property market growth that we have witnessed in the past 12 months has been underpinned by low interest rate, affordable house prices and increased lender confidence.” Simply put, residential properties are still priced appealingly, low interest rates make repayments affordable and banks are more willing to lend money to prospective buyers. All the indicators now point to 2014 being a good year for residential property and those aware of the market trends should, be buying right now. In Rawson Property Group Chairman, Bill Rawson’s view, the factors working in favour of a steady growth in house prices are: •
The strong likelihood of inflation being contained below 6% and therefore interest rates remaining at low levels for most of 2014: To give the right impression in the run-up to the election and show that they have South Africa’s economic growth at heart, the government will, in fact reduce the interest rate by a further 0.25%. It would win the approval of the influential trade unions and other powerful bodies and it would help people to reduce their debt and have slightly more spending money.
Increased infrastructural spending and the resultant job creation: Funds allocated for internal development in South Africa have not been fully used. The State opening the taps further from now on will put extra cash into the consumer’s pockets as well as improve the efficiency of our transport networks, roads and other infrastructural components.
The growing shortage of homes and the resultant willingness to pay above previous price levels: the demands for homes are increasing and this have a positive effect on prices.
The capital growth potential in housing in South Africa: with current and fixed deposit bank account as well as many other traditional money markets often giving very low returns, the logic of buying into bricks and mortar has greatly improved.
Rawson predicts that the strongest demand countrywide will be in the R250 000.00 to R500 000.00 bracket, followed by an almost equally strong demand in the R500 000.00 to R 1 500 000.00 bracket. At the same time, he said there is clear evidence that in the upper brackets demand and sales figures are also improving month-by-month.
We believe the improved lending criteria and still low interest rate environment, will contribute to ongoing positive growth in the number of property market transactions in 2014. Overall the property market ended strongly in in 2013 and it is anticipated that 2014 will be another year of positive growth.
Ways To Improve Your Creditworthiness In 2014
When applying for a home loan you need to ensure that your credit record is in good standing in order to increase your chances of a successful bond application.
When providing credit to consumers, says Kay Geldenhuys, Property Finance Processing Manager at bond originator OOBA, 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.”
She says that it is therefore imperative to have a clear credit record when applying for a home loan finance. “When applying for a bond, banks are going to scrutinise your credit rating. Therefore, a bad credit rating or an adverse listing on your name can seriously hinder your ability to secure home loan finance.”
Banks have tightened their lending criteria as a result of the National Credit Act and a negative credit record may impact the result of you home loan application. Geldenhuys says that in order to keep a healthy credit score, consumers should follow the following guidelines:
Ensure that you meet your monthly debt repayments on time. Even a payment that is only 24hours late can be bad for your rating.
If you fall behind on repayments, get back on track as soon as you can.
Close accounts you don’t use. Credit providers assess the full facility of the credit agreements on record, even if they are not being used.
Always pay the minimum instalments required
Draw up a budget and stick to it
Boost your buying power and reduce your debt. If possible, pay more than the minimum payment on your accounts to further improve your credit standing.
If you can’t make a payment, talk to the relevant creditor about making an alternative payment plan.
Don’t ignore a letter of demand always be proactive and take appropriate action.
CREDIT SCORE IMPROVEMENT TIPS
Be it a big or small step, a combination of both will be very effective in pulling up your credit score by almost 100 points and probably more.
There are simple steps that can be a real boost for your credit score and would be beneficial for your overall financial health and your credit rating in particular:
Improve your DTI ratio – DTI stands for debt-to-income ratio. It is one of the factors used to determine your credit. A DTI is based on the outstanding balance amounts you owe. However, this does not imply the actual debt owed by you, but it is available credit you have versus the amount of money you owe that would be referred to as your real DTI ratio. One of the ways to improve it is to request your creditors for a credit hike without having to pay extra on your outstanding debts.
Handle collection account, liens and charge-offs efficiently - Credit accounts that have been sent to collections or were charged off will have a serious effect on your credit score, and this is why they need to be handled carefully. It is better to address those charged-off accounts that are less than 24 months old, after that if your financial resources permits so, then you may pay off the other debts as well. Here, you cannot hope to improve your credit score without removing the collections accounts from your credit report. To get them
removed, ask your creditors to erase them from your credit report after you have paid them back their outstanding balances. •
Apply for good faith considerations: in case of one or two late payments due to some kind of overnight financial problems that have been resolved, you may approach your creditors for the so-called good faith adjustments. You may contact or write to them for that matter asking for a courtesy adjustment keeping your financial crises that you went through in mind. The catch is that if you’ve been a really good customer, then upon request, your creditors might oblige to have those few late payments removed from your credit report.
Pay back all your outstanding revolving debt balances: if you truly want to improve your credit score by more or less 100 points within a short period of time, pay back all your revolving debt balances. Your credit score will no doubt improve, if you pay off your instalment loans
National Credit Act
The National Credit Act is comprehensive in how it affect various South African credit transactions. Most credit products such as secured loans, credit cards, overdrafts and even incidental credit agreements and personal loans are covered under the Act. If you are to apply for a mortgage, lease or credit guarantees, these transactions are also covered by the NCA.
One of the most important contributions made by the NCA is that it defines our rights as banking consumers. We take a brief look at the five main consumer rights we enjoy under the Act.
1. THE RIGHT TO APPLY FOR CREDIT
The National Credit Act affords you the right to apply for credit to a bank. Banks have to treat all consumers equally in relation to one another when assessing the application, determining fees and rates, compiling the credit agreement and eventually in enforcing the credit agreement.
Although the bank is obliged to receive and evaluate your application, they reserve the right to approve or reject the application.
If you believe that your application has been rejected due to unlawful discriminatory practices, you can either approach the equality court or the National Credit Regulator.
You may ask your bank to explain, in writing, their main reason for:
Refusing your application for a new credit facility;
Refusing to renew a renewable credit facility;
Offering you a lower credit limit than the limit you applied for;
Reducing your existing credit limit; or
Refusing your application for an increased limit on an existing facility.
If your credit report was the main problem, the bank has to disclose the name, address and contact details of the credit bureau that issued the report.
2. THE RIGHT TO RECEIVE INFORMATION IN A OFFICIAL LANGUAGE
You have the right to receive information and documentation in a language you can read, speak and understand, provided that the language you choose is an official language of the Republic of South Africa. The bank has to allow you to choose from at least two different official languages.
3. THE RIGHT TO INFORMATION IN PLAIN AND UNDERSTANDABLE
All information has to be presented in a way that a consumer with average literacy skills and minimal credit experience can understand. The bank has to use plain language, simple sentence structures and uncomplicated graphics and illustrations.
4. THE RIGHT TO RECEIVE DOCUMENTS
As a consumer you have the right to receive documents. To enable this right, the bank has to have the following delivery mechanisms in place:
a) Ordinary mail; b) Fax; c) Email; or d) Printable web-page
You can choose from any of these at no additional delivery charge.
5. THE RIGHT TO CONFIDENTIALTY
You have the right to confidentiality â€“ meaning the unless you expressly grant permission, the banks and the credit bureaus are not allowed to disclose your personal information to any other party, except as required by Law or as ordered by Court.
The National Credit Act allows us, as banking consumers, to approach the National Consumer Tribunal, the courts and the Ombudsman for assistance in credit related matters that we cannot solve directly with the banks and the credit bureaus.