Affordability still the key to getting finance, says Betterbond

South Africa’s financial institutions have taken the brunt of the blame for not approving more mortgage finance, which many believe would go a long way to further stimulating trade within the property market. However, with South Africa’s debt-to-income ratios still at a very high level, affordability remains a primary consideration that is weighed up before finance is granted.

“The banks' first criterion in the evaluation of an applicant remains affordability and the risk of the applicant when it comes to the repayment of a long term loan,” says Rudi Botha, CEO of Betterbond, South Africa’s largest mortgage originator, who notes: “The ruling that a maximum of 30% of the gross salary may be used for the monthly repayment of the home loan instalment was around even prior to the inception of the National Credit Act (NCA), and it is still applicable today.”

In addition to this, but equally important, is disposable income, that is the amount remaining after the deduction of all monthly expenses from the gross salary. This, amount needs to be more than the estimated monthly repayment of the home loan being applied for.

Credit bureau ratings are also taken into consideration as they provide a history of the individual’s repayment capabilities and highlight any potential areas of risk that may exist, which would in turn affect the risk rating of the applicant.

Botha emphasises that a good credit record is one of the most vital factors in ensuring a successful home loan application. "The banks rely on historic repayment information from up to two years ago, and any late or non-payment of monthly accounts over that period may make the repayment ability of the applicant questionable."

He also points out that the banks all have different risk appetites and drives for market share as well as variations on requirements for different types of applicants. “Banks don’t share further information on their scorecards as this is compiled out of numerous characteristics and calculations which are adjusted from time to time as their requirements and strategies change.”

In order to ensure a higher likelihood of approval for mortgage finance, Botha’s final words of advice for consumers are to be careful not to take on too much debt, to ensure they live within their means and to make payments to retailers and other financial institutions preferably prior to the due date required.

Article: Betterbond

Why a Bond Originator?

Establishing a property investment may sound daunting but with the help of an estate agent and a bond originator it is really not that difficult. An estate agent will help you find the right property and the bond originator in conjunction with the estate agent will help to pre-qualify you as a buyer. When you have found a suitable property through the estate agent, a bond originator will then facilitate your home loan application with one of the major banks at the best possible interest rates.

The Bond originator deals on your behalf with numerous people during a bond application process while they are the sole point of contact. A Bond originator gets paid bond commission by the bank that grants the loan. They will therefore do their utmost best to deliver a good service because it is their sole source of income.

Before reaching a sale agreement between a buyer and a seller a long time could pass and a lot of hard work by an estate agent went into finding a buyer a suitable home. It could be upsetting for both parties if the bank turned down the bond application. It is therefore better in the current property market to pre-approve a buyer beforehand.

Pre-approval entails a credit check and submitting necessary documentation such as a recent pay slip, marriage certificate, bank statements etc to see if the buyer qualifies for a home loan and at what price. To Pre-approve a buyer makes everybody's work a lot easier. In the first instance a buyer knows what he/she can afford, the estate agent does not waste time and money to show a potential buyer properties that are not in their price range and the possibility for a home loan application to be successful is therefore much higher.

When using a bond originator, consumers have the advantage that banks have to compete against each other for every loan in offering a good interest rate.

Bond originators in South Africa have saved buyers R7,35 billion the past year in interest charges through the negotiation of lower financing costs. (Property Professional Magazine, p58 March/April 2009 issue).