The Reserve Bank of South Africa left the repo rate unchanged at 5 percent with prime interest rates at 8.5 percent.
Mike van Alphen, national manager at Rawson Finance, says roughly about 20 percent of home loan applications in South Africa require 100 percent bonds currently and yet the rejection rate on this type of application is always higher than the average.
Adrian Goslett, chief executive officer of RE/MAX of Southern Africa notes that the interest rate was cut by 50 basis points from 9 percent to 8.5 percent in July 2012.
For many consumers, a low interest rate environment is an opportunity to pay off debt and get financially fit to deal with the ever-increasing cost of living.
“While homeowners with fixed interest rates will be less affected by the fluctuation of the rates over the term of their loan, those without fixed rates have experienced a decrease in their monthly repayments since the property boom.”
He says ideally, homeowners who have experienced a cut in their repayments should take advantage of the current rates and pay the extra money into their bond.
“An increased payment will reduce the term of the loan and pay it off faster, without affecting a homeowner’s monthly budget too severely,” says Goslett.
Buying property and home loans
According to Rawson Property Group, home ownership in South Africa is steadily increasing, however, too few would-be buyers qualify for home loan finance.
The agency notes an increase in sales in the lower end of the market.
Tony Clarke, Rawson Property Group managing director, says approximately 40 percent of all sales in South Africa are for property valued below R400 000 and 80 percent of buyers look for homes priced below R600 000.
“This would appear to indicate that a significant number of lower income earners are now at last realising their dreams of becoming home owners, but the reality is that far more are still unable to afford a home.”
Clarke explains that the high percentage of buyers at the lower income levels do not qualify for bonds and most developers are just not capable of bringing new homes to the market at prices below R700 000.
He notes that the development market is flourishing in homes priced between R700 000 and R1.2 million, although these homes are expensive for nearly 80 percent of South Africa’s potential buyers.
Mike van Alphen, national manager at Rawson Finance, says roughly about 20 percent of home loan applications in South Africa require 100 percent bonds currently and yet the rejection rate on this type of application is always higher than the average.
According to NCR, the number of creditors in good standing in the last quarter decreased by 76 000 to 10.5 million, while the number of consumers with impaired records rose by 189 000 to 9.53 million, representing 47.5 percent of all South Africa’s credit active consumers.
“Some 85 percent of those applying for 100 percent loans tend to buy in the R500 000 to R750 000 price bracket and those hoping to buy above R750 000 often upgrade and can put down 10 or 15 percent deposits as a result of the sale of their current home.”
He urges applicants to check their credit records before applying for a bond and to also save for a deposit.
Indebtedness
The National Credit Regulator (NCR) has revealed that in the last year, no less than 394.4 million credit record enquiries were made to assess potential borrowers’ creditworthiness.
This was a year-on-year increase of 27.1 percent and South Africa has more 20.8 million credit-active consumers, a figure which is 0.6 percent up on the previous quarter.
According to NCR, the number of creditors in good standing in the last quarter decreased by 76 000 to 10.5 million, while the number of consumers with impaired records rose by 189 000 to 9.53 million, representing 47.5 percent of all South Africa’s credit active consumers.
The gloomy outlook is that many would-be buyers with impaired credit records could easily get the impression that they will never qualify for a bond and will be forced to rent in perpetuity — but this is not the case.
Van Alphen says it is therefore important to maintain a clean record as it is almost impossible for defaulting creditors to stay under the radar as banks and other financial service providers make extensive use of the credit bureaux records.
Van Alphen points out that with the help of a good bond originator, impaired credit records can be rectified without undue difficulty - a factor which many blacklisted consumers are not aware of.
He says this is often possible if credit arrears are only in the current debt category (roughly 37 percent of credit impaired debtors are listed here) or are one or two months in arrears (approximately 15 percent of the total) or even if they are three or more months in arrears (approximately 20 percent), he explains.
Tony Clarke, Rawson Property Group managing director, says approximately 40 percent of all sales in South Africa are for property valued below R400 000 currently and 80 percent of buyers look for homes priced below R600 000.
“In cases like these, making an arrangement with the help of the originator to pay off the debt in a stipulated period can and does result in the debtor once again being accepted as a prospective borrower/mortgage loan applicant.”
Where a consumer has had a court judgement against him on account of an unpaid debt or where the size and number of his debts has resulted in his being blacklisted by the Credit Bureau, it is far harder to reinstate that consumer.
Van Alphen points out that many people have impaired records because of high pressure salesmanship, which saw consumers enter into hire purchase agreements.
For example, offered the chance to buy say a car, furniture or new kitchen equipment on seemingly reasonable monthly payments, the consumer can all too easily overlook the fact that a few months down the line he/she may be on a reduced income or even have no income at all - a possibility that the salesman will not have taken into account.
Very few hire purchase customers plan to default but they end up doing so because they are too confident of future income, says Van Alphen.
“Since the implementation of the Consumer Protection Act, this should be happening less, but so far we have seen no difference.”
Van Alphen adds that the fact that many bond originators have been able to achieve higher percentages of accepted bond applications this year is remarkable considering the staggering rise in debt payment defaulting.- Denise Mhlanga
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