Archive | January 2014

Home buyers need higher incomes, says BetterBond

According to the latest statistics from BetterBond Home Loans, South Africas’s biggest mortgage origination group, home buyers in South Africa now need to earn a gross monthly income of around R30 000 to buy an average home costing R952 000.

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The BetterBond figures also show that 64% of buyers currently have to pay a deposit in order to secure a home loan, and that the average deposit required for a home priced at R952 000 is around R99 000 – or 10,4%.

“This puts the average home loan required to buy such a home at R853 000, and the average monthly bond repayment at just over R7 400,” says BetterBond CEO Shaun Rademeyer. “In the days before the National Credit Act, when the simple rule-of-thumb was that your monthly bond repayment should not exceed 30% of your gross salary, that would have meant that a gross salary of R24 700 was enough.

“But in terms of the Act, banks are obliged to try to stop consumers from becoming over-indebted. So when they consider a home loan application, they must now also take into account your existing debt commitments and regular monthly expenses, and see if there is enough disposable income left over to comfortably cover the monthly bond repayment.

“Because of the high household debt levels in the country, and the continually rising cost of food, transport, utilities, healthcare, and education, most prospective homebuyers now need to have higher earnings in order to ensure that there will be a big enough amount ‘free and clear’ every month to cover their bond instalment.”

Things are a little easier for first-time buyers, says Rademeyer, with the average home price in this sector of the market having risen by just R27 000 in the past 12 months, and deposit requirements having shrunk considerably to between about 6% and 10%.

“What is more, about two-thirds of the 100% bonds that are being granted are going to buyers at the affordable end of the market where most buyers tend to be first-timers.”

In any case, he notes, the banks’ still-strict lending criteria do not appear to have put much of a damper on the demand for home finance – or in fact on the banks’ willingness to lend to qualifying applicants.

The BetterBond statistics show a 3,75% year-on-year increase in November in the number of home loan applications received and, even more significant,  a 14% increase year-on-year in the number of applications formally granted (that is, approved and taken up by the borrowers).

The figures also reveal a 10,5% year-on-year drop in November in BetterBond’s initial decline rate (the percentage of applications declined by the first lending institution to which they are submitted) and a 15% year-on-year increase in the ratio of applications declined by one bank but approved by at least one other.

This took the group’s average approval ratio to 76% in November, which means that it is securing a bond approval for at least three out of every four of its applicants – and the statistics reveal that about 80% of these approvals are taken up by borrowers and converted to formal grants.

How to protect your pre-approval

Once you have been pre-approved for a home loan, you should avoid making any significant changes to your financial situation until you have bought your new home and your home loan account has been activated.

Pre-approval

It would seem obvious, for example, that you need to keep paying your bills in the time between home loan pre-approval and the transfer of your new home, but it is easy to forget things or pay late in the excitement of house hunting.

In addition, you should make sure you don’t go into overdraft on any of your accounts, and that any debit order payments are left as they are. Your preapproval is a “snapshot” of your financial situation at a particular time, and you need to stay as close to that picture as possible until your home loan is granted.

This is why you should also not apply for any new credit during this period. Mortgage lenders are bound to do a second credit check before a final loan approval, and if you’ve opened a new account, this will have to be verified, and that could delay your approval. Of course your credit score could change because of the new credit, which might mean an adjustment to the interest rate you will be charged as well.

What is more, if you have bought something major on credit, the lender will have to factor the repayments into your debt-to-income ratio, as required by the National Credit Act, which could result in you not getting the loan at all.

You should also be careful about paying cash for large purchases at this time, or even paying off a debt like a credit card balance, as that could result in you having lower reserves to cover a deposit or the transfer costs, and once again change the lender’s assessment of your financial situation when it comes to granting the loan.

In short, every move you make with your money will have some sort of impact, so you should consult your mortgage originator and the lender that gave you the pre-approval before you do anything.

If you can avoid it, you must also really try not to change jobs after a preapproval. Even if it seems like a good career move, the bank would have to verify the details and might well require a few months’ worth of payslips to prove your new salary, and that could delay your loan approval by quite a long time.

And finally, although adding to your assets should not be a problem, you should keep records of any unusual deposits into your bank accounts at this time. If you receive a bonus or a gift of cash, for example, or sell some shares or other assets, you must be able to prove where the money came from.

Getting a better connection with clients

Connecting with clients

Ever wonder why you and a particular client didn’t connect? Do certain client types drive you crazy, but you just don’t know why? The answer may be in recognising whether you (and your clients) are visual, auditory, or kinaesthetic, says psychology professor and top real estate coach Bernice Ross.

“Psychologists have demonstrated that we use all three modalities (sight, hearing, and touch) when we process information, but that one modality is usually dominant”, she says.

For those who are visual, how things look is most important. You can recognise a visual person by their quick rate of speech and their attention to being colour coordinated.

By contrast, auditory individuals are concerned about how things sound, and you can recognise them primarily by how they use their voice – they are often quite dramatic in their style of speaking.

Kinaesthetics, meanwhile, place great emphasis on how things feel and their speech patterns are slow and deliberate.

Writing for http://www.realtytimes.com, Prof Ross says it is important for agents to know about these stylistic differences, because when there is a mismatch in styles, distrust is created and you no longer operate at peak effectiveness.

“For example, a fast-talking visual will go absolutely bonkers working with a slow-moving, slow talking, thoughtful kinaesthetic client who cannot articulate what is wrong with the property.

“On the other hand, the kinaesthetic client may well lose trust in the visual agent because he or she feels that the visual’s rate of speech is ‘pushy’.

“Similarly, a visual agent who calls an auditory client about a great looking contemporary with a breath-taking view will probably receive a lukewarm response, as will the kinaesthetic agent who is excited about the warm and cosy home with all these great little nooks and crannies.”

However, she says, an agent who tells an auditory client how the agents in his office are talking about what a great buy this quiet property is, and how his friends will be talking about what terrific property he bought, will probably have a highly motivated client.

In other words, it is well worth identifying what type of client you have and then learning to speak their “language”, as follows:

Visuals will use and respond to words like “look”, “picture”, “light”, “bright”, and will often go in search of a home with a view. They prefer face-to-face and written communications rather than phone calls, and may be bad at remembering anything you tell them. Rather write it down.

Auditory people will use and respond to words like “I hear”, “sounds like”, “tell”, and will usually prefer a home in a quiet location. Their preferred communication mode is obviously verbal (phone rather than text or email), and you should not count on them to read sales documentation carefully. Rather take the time to verbally go through contracts with them.

Kinaesthetics use and respond to words such as “I feel”, “warm”, “comfortable”, “roomy”, and generally want a home that they feel has a good atmosphere. It takes time to build trust and rapport with them, and you need to respect that their feelings will ultimately guide their decision making. They will take their time with documents, and you need to make sure every detail is correct.

How to help ‘rebound’ buyers

Rebound buyers

Five years on from the ‘Great Recession’ and many of those who lost their homes because they were unable to pay their homeloan instalments, are ready to buy again before property prices rise too much, or interest rates start climbing.

And many of these ‘rebound’ buyers are highly motivated and a pleasure for agents to work with, because they’ve already experienced the benefits of owning a home rather than renting – or having to share accommodation with parents or siblings.

However, they may not find it all plain sailing, and estate agents who would like to sell them their next home need to be prepared to help them through what may be quite a long process.

The first thing rebound buyers need to do is make a definite plan. They tend to assume they’re ready, even when they still have issues that need to be addressed, but an experienced agent can help them work out exactly what steps they need to take to be able to buy again and how long these will probably take.

Next, rebound buyers must ensure they have fully repaired their credit records. Those whose only impairment was the default on their mortgage will probably be able to do this more easily than those whose history is littered with other late or missed payments and debt judgments. But everyone needs to make sure their house is in order before they even think of applying for a new homeloan.

Old debts and judgments need to be paid off and cleared from their credit history, and a couple of years of bills being paid in full and on time would help enormously.  In fact, they should do their best to completely pay off any other debt – like credit card balances, car finance or personal loans – or lower it significantly, because lenders can’t approve a loan if the borrower’s debt-to-income ratio exceeds the National Credit Act guidelines.

Rebound buyers also need to be prepared to pay a substantial deposit.  This may come as a surprise to those who bought their previous homes in the days when the lenders were happy to grant 100% mortgages, but times have changed, and they should not feel as if they are being singled out because of their previous problems. They need to know that the majority of buyers are now expected to have some equity in their homes right from the start, and paying a deposit does make monthly bond repayments more manageable.

In addition, rebound buyers should get a homeloan preapproval from BetterBond before they go house hunting, so that they – and any agents they work with – know what their home price limit is, and no one wastes time looking at properties they can’t afford.

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