Archive | July 2014

The benefits of paying a deposit

home-loan-deposits-how-muchOf course no-deposit or 100% home loans do make it easier for young buyers and first-timers to get a start in the property market, and since the total withdrawal of such loans in the 2009 recession, they have steadily become more freely available, especially for the purchase of lower-priced properties.

“However, our latest statistics show that the percentage of loans being granted for the full purchase price has actually fallen to 39% now from 41% two years ago, and is still trending downwards,” says Shaun Rademeyer, CEO of BetterBond Home Loans, SA’s leading mortgage origination group.

“This is no doubt a reaction on the part of lenders to the recent contraction in the economy and growing employment uncertainty on the part of consumers – and it underlines the fact that it is always preferable for home buyers to pay a deposit if they possibly can,” he says.

If someone with a new 100% home loan were suddenly to lose their job, for example, and had to sell their home in a hurry, there would be selling costs and agent’s commission to pay as well as the 100% loan to repay, so they could quite easily end up owing more than the sale price of their property.

“The buyer who had paid a 10% or 20% deposit would obviously be able to cope much better in this situation – and it is worth noting that those who put down a deposit are also typically granted their loans at a lower rate of interest, which makes it easier for them to keep up with monthly repayments when times are tough.”

In addition, Rademeyer notes, those who save up a deposit before buying will save a significant amount on the total cost of their home over the loan period.

“For example, a R650 000 home bought with a 100% loan at 10,25% (prime plus 1%) would cost a total of more than R1,53m over 20 years. The same home bought with a deposit of R65 000 and a 90% loan would cost a total of about R1,38m.

“That is a saving of more than R150 000 – a pretty good return on the R65 000 that the homeowner ‘invested’ as a deposit. And it is likely to be even better if the buyer is able to secure a better interest rate by paying a deposit.”

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Property market steaming ahead, says BetterBond

StatisticsThe latest statistics from BetterBond Home Loans, SA’s leading mortgage origination group, show ongoing positive activity in the residential property market.

The figures reveal a 12,05% increase in the number of home loan applications received by BetterBond in the month of June, compared with the same month of 2013, and a 9,23% increase in the value of applications submitted to the major lending banks.

They also show, notes BetterBond CEO Shaun Rademeyer, that there was an increase of 4,11% in the value of home loan approvals.

“In addition, in the 12 months to end-June, there was an increase of 4,19% in the total number of bonds for which we secured approvals, and a 6,57% increase in the total value of those bonds to more than R36,2 billion, compared to just under R34 billion in the previous 12 months.”

At the same time, he says, the number of applications initially declined by one bank but subsequently approved by others rose by 5,37% year-on-year, “which once again underlines the importance of working with a mortgage originator that will not only motivate individual applications, but is able to submit them to multiple banks in order to secure the best result for the prospective home buyer.

“This is further evidenced by the fact that there was an 8,66% increase during the 12 months to end-June in the number of bond applications rejected by the borrowers’ own bank, but then approved by other banks. The total value of these ‘rescued’ applications was over R5 billion.”

The BetterBond statistics also show that the average home purchase price has increased by 10,5% over the past 12 months to R908 483, and that the average first-time home purchase price has increased 7,65% to R641 979.

Meanwhile, the average approved bond size has increased by just over 2% in the past 12 months to R756 479, and the average bond approved for first-time buyers has increased by 0,5% to R586 328.

More good news is that the average percentage of purchase price required as a deposit has shown a 3,64% decline year-on-year, while the average percentage of purchase price required by first-time buyers has declined by 6,2%.

“In short, we are seeing solid buyer confidence reflected in still-growing demand and home prices,” says Rademeyer, “and increased lender confidence in the market, although their credit criteria are stringent.”

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