Property market steaming ahead, says BetterBond

The 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.”

Origination also has many benefits for estate agents

In less than 20 years, home buyers have become so used to sourcing their finance through mortgage originators like BetterBond Home Loans, that this business channel now accounts for more than 60% of the new home loans granted every year.

However, says BetterBond CEO Shaun Rademeyer, the benefits of mortgage origination don’t stop at convenience for buyers but extend in several ways to estate agents.

“As a start, an originator like BetterBond is able to arrange home loan pre-approvals for prospective buyers so that they (and the agent showing them properties) can concentrate only on those homes they know they can afford. This increases the likelihood of a sale, and it also creates a level of comfort for the agent’s client, the property seller, when accepting an offer to purchase.”

Secondly, he says, originators can and do help agents overcome the biggest obstacle in the way of most residential sales – that is, the need for the buyer to obtain a home loan – by speeding up the loan application process and providing buyers with personalised advice on the choice of loan.

“Third, mortgage origination can significantly improve agent productivity. It frees the agent of the need to assist buyers with loan applications and time spent administering these. He or she can get on with the business of selling more properties.

“And finally, the transaction tracking and management performed by originators like BetterBond, usually translates into faster property transfers and quicker payments to agencies of their sales commissions. This can significantly improve agency cash flows.”

However, Rademeyer notes, agencies need to be sure that the origination partners they choose can actually deliver all these benefits. “And what they should be looking out for is an originator that employs experienced consultants who not only have extensive loan product knowledge, but are willing to establish each buyer’s financial situation and motivate their individual applications.

“It is, of course, also important to work with an originator that has embraced the latest technology not only to make loan applications, but also to track and manage them, and to keep their clients’ information private and secure.”

BetterBond helps new buyers to budget

Advising first-time buyers about home financing is a serious business – and is taken seriously by the home loan consultants at BetterBond Home Loans, SA’s leading mortgage origination group.

“We realise,” says CEO Shaun Rademeyer, “that the information which many first-time buyers need goes well beyond what their home loan options might be. They often don’t know, for example, if they have budgeted properly for a home purchase and if they will be able to afford their home loan repayments every month”.

Others may need to know, he says, how much cash they will require to cover the ‘hidden’ costs of a home purchase such as transfer duty and bond registration costs, and yet others may not have allowed for the ongoing costs of home ownership such as municipal property rates, estate levies and maintenance. But the BetterBond loan consultants are trained to provide all this information and more, and that can really smooth the way to a successful home purchase.”

“The main reason we do this is that we want people’s homes to be the foundation of their future wealth, not a financial burden that swallows up too much of their income every month. It is also why we recommend that all buyers – and especially those entering the market for the first time, should be pre-qualified for a home loan before they start looking for their new home.”

Getting pre-qualified, Rademeyer notes, enables prospective buyers to focus their home search on those properties they know they can comfortably afford, instead of being tempted to “stretch” themselves financially to buy something too expensive. It also increases the likelihood of their offer to purchase being accepted, because the seller is reassured that they are financially capable of buying his property.

Meanwhile, he says, home buyers calculating the ongoing costs of home ownership should not forget about the premiums for at least two types of insurance that will probably be new to them, the first being homeowners insurance (HOC), which covers the “bricks and mortar” of the home itself at replacement value – that is, the amount it would cost to rebuild should it be completely destroyed, say by fire or flood.

“Most homeowners simply allow the premium for this insurance to be debited to their home loan account, but it is worth noting that paying it separately when it falls due could mean a long-term saving of thousands of rand in interest. In addition, a borrower does not have to buy this insurance from the bank that gives him a home loan, as long as he can prove that he has enough cover.”

And similarly, Rademeyer says, the lending bank may insist on the borrower having what is called “bond insurance” – which is actually credit life insurance to cover the outstanding amount of the bond in the event that the borrower dies or is permanently disabled – but the borrower is also free to obtain this insurance wherever he likes.

How to choose an estate agent when selling your home

If you are trying to sell your property, it is important that you make use of the services of an informed, professional estate agent to get the best out of your deal and ensure a hassle free process.

Here are the some important tips to keep in mind when selecting your estate agent:

1. Choose a few potential estate agents based on feedback from friends and relatives, colleagues, websites, etc. While making a short list, focus on the agents’ experience. Find out some information on their background, what deals they’ve closed and how they would deal with your property sale if it was not selling as hoped.
2. Interview all the short-listed estate agents, and gather information about their experience and credentials. Someone who has taken the time to qualify with related qualifications and has membership of professional organisations/bodies may help you negotiate a better deal and provide a better service.
3. Are you and the agent compatible? You’ll be doing a lot of communicating with your agent and this compatibility will make the process a lot easier in the future.
4. Choose an agent you can trust. Look for enthusiasm, dedication, creativity and market savvy. All of these will translate into extra efforts and you’ll definitely stand to benefit from that.
5. Know the team. Estate agents will have employees who will be equally representing yourself and the property sale. They should also be skilled and able to converse and communicate intelligently about all the details involved in your property transaction. Make sure whoever you are dealing with respects you and your time.
6. Make sure your estate agent understands exactly what you want, and that he/she is capable of achieving that. That said, also make sure your expectations are realistic. An estate agent who offers a figure lower than you had envisaged may be giving an honest appraisal and not just telling you what you want to hear.
7. Choose an estate agent who has outstanding negotiation skills, personality, and charisma. A good estate agent will first look to satisfy your target price, not that of the buyer.
8. Consider estate agents who are able to offer multiple advertising opportunities (including advertising on the internet) and in-house arrangement of property inspections.
9. Remember: Higher fees do not always represent better service.
10. Examine the contract closely and fully understand what you are committing to.

Good luck finding the right estate agent for you!

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‘Bargain’ homes can be money pits

Buying a “fixer-upper” can save you money, and possibly put you in a preferred location for a lot less than you thought. And they are definitely worth looking at because, as estate agents are always saying, it is much better to purchase the worst home in a good neighbourhood than to buy the best home in a bad area.

However, says Shaun Rademeyer, CEO of South Africa’s biggest mortgage originator BetterBond, you need to be especially careful when you consider buying a “bargain” home, because you could easily end up having to deal with much more renovation and repair work than you thought.

“If the property is simply ‘tired’, it may take only a coat of paint, some modern fixtures and fittings and some landscaping to bring it up to the standard of the surrounding homes and increase its value.

“But run-down properties often require quite a lot more than that, and potential buyers would be well-advised to have the ‘bargain’ property they are thinking of buying thoroughly inspected by a professional before they sign an offer to purchase.”

Once you have the inspector’s report, he says, it will be much easier to be realistic about what it will really cost to renovate the home properly, and then to consult with an experienced local estate agent to work out whether this expenditure would mean overcapitalising for the area.

“Remember if the home needs any structural changes, you will need to include engineer’s and architect’s fees in your renovation budget, as well as those for the actual building, plumbing and electrical work that may be necessary.”

In addition, says Rademeyer, you would have to get plans for any alterations agreed to by the neighbours and then approved by the local authority, which is likely to take quite some time and could mean that you have to pay a lot in holding costs – the bond instalments and  rates and taxes – before you could even start renovating.

“Adding all this up, buyers usually find that it is not worth taking on a major renovation if their plan is to complete it and resell within two or three years. Generally you need to live in a renovated home for an extended period before property values in the area will rise enough to enable you to recoup both your original purchase price, and your renovation expenditure, should you wish to sell.”

First-time buyers holding on to their dreams

Fuel prices have just risen to record levels, the cost of food is set to jump, and utility charges are already sky high, so it’s getting tougher by the day for young people to buy their first home.

“And yet, first-time buyers still accounted for almost half (48%) of all the home loan applications we received in the past 12 months,” says Shaun Rademeyer, CEO of BetterBond Home Loans, which accounts for more than 25% of all residential mortgage bonds being registered in the Deeds Office and is South Africa’s leading mortgage origination group.

“This shows just how important home ownership still is to young South Africans, even though it often takes them a few more years to achieve than it took their parents, with the average age of first-time buyers now being 34.”

According to BetterBond’s latest statistics, the average home purchase price paid by first-time buyers rose by 7,9% in the 12 months to end-March to reach R630 000, but lenders made things somewhat easier for them by dropping the average percentage of purchase price required as a deposit from 12% to 10,6%.

By contrast, Rademeyer notes, the figures show that the overall average purchase price rose by 11,7% year-on-year to R890 000, and the overall average deposit required declined only marginally to 18,5% of the purchase price.

“Most buyers have thus had to put a significantly larger amount of cash into their home purchases in the past year and, especially in the past two months since the increase in the prime interest rate, the effect of this is starting to become evident in a slower rate of growth in the number of bond applications received each month.”

However, he says, the March statistics still show substantial year-on-year increases in both the number and value of home loan approvals, as well as a 13% year-on-year increase in BetterBond’s home loan approval rate to 77,2% of all applications received.

“We secured almost 52 000 home loan approvals with a total value of R38,1 billion in the 12 months to end-March, (compared to 49 000 approvals valued at R35 billion in the previous 12 months), and almost half of those approvals were on applications that we were able to rescue after they were initially declined.

“This highlights the fact that we are able to offer home buyers a significantly better chance of having their home loans approved by being able to motivate applications and submit them to multiple lenders.

“At the same time, however, it is encouraging to see that the banks’ initial decline ratio did show a year-on-year decline of 21% at end-March, reflecting their greater willingness to lend into the mortgage market in the past 12 months.”

Market is shifting towards the middle

More than 70% of the home loans currently being granted are for amounts under R1 million, according to the latest statistics from BetterBond Home Loans, which accounts for more than 25% of all residential mortgage bonds being registered in the Deeds Office, and is South Africa’s leading mortgage origination group.

Another 26% of the loans being granted are in the R1 million to R2,5 million range, leaving only about 3% in the over R2,5 million category, says company CEO Shaun Rademeyer.

“Indeed, despite all the attention currently being given to the increasing sales of multimillion-rand trophy homes, the real backbone of the housing market at the moment is the lower end, where every month sees many thousands of people making offers to purchase and applying for home loans.

“This is reflected in our figures, in the fact that 48% of applications are still coming from first-time buyers, whose average home purchase price is R630 000, and who are paying an average of R67 000 as a deposit.”

However, he says, there have been a few quite noticeable shifts in lending patterns over the past 12 months, in line with a gradual upward shift in property prices, and an increase in purchasing in the middle-income sector, which has more repeat buyers with equity in existing homes that they can leverage as deposits.

“For example, the proportion of bonds granted in the R250 000 to R500 000 price range has dropped by more than 16% in the past 12 months, while the proportion being granted in the R1,5 million to R2 million range has risen by 33%.

Meanwhile, Rademeyer says, it is interesting to note that despite the banks’ increased appetite for mortgage lending in the past 12 months, the percentage of loans being grated for 100% of the purchase price has declined, with the result that 61% of all borrowers are now required to pay a deposit.

“And according to our figures, the average percentage of purchase price required to pay as a deposit has been a not-insignificant 18,5% over the past 12 months – although it does vary greatly depending on the home price category and, of course, on the individual borrower’s credit profile.

“This trend is tilting things further in favour of middle-sector buyers, and we expect it to gain momentum as interest rates and household expenses continue to rise over the next 12 months.”

Don’t get burned on bricks-and-mortar insurance

Everyone who owns a home – whether it is still bonded or they have already paid it off – should check at least once a year to see that they have enough home insurance (HOC) to cover the total cost of replacing it if it is destroyed by fire, flood, or other disaster.

So says Shaun Rademeyer, CEO of South Africa’s leading mortgage origination group BetterBond, who points out that if your home is under-insured, as it may well be if it has increased in value since you bought it or if you have made additions and alterations, you could be in for a big financial blow if something untoward happens.

“Taking the example of a home bought 10 years ago for R500 000, this may well have doubled in market value to R1 million now, and will no doubt have an even higher replacement cost due to the fact that building costs have increased substantially in the meanwhile.

“According to Absa, for example, the cost of building a new home is currently 37% higher, on average, than the cost of buying an equivalent pre-owned home.

“But if the HOC has not been adjusted, it would only cover the original R500 000 cost of the property, so the ‘under-insured’ component of the replacement cost in the event of a disaster would be a whopping R870 000 – which the homeowner would have to pay himself. And that does not include the additional cost of any demolition that may be necessary, architects’ and other professional fees, and new local authority connections.”

Insufficient HOC, he says, is one of the unintended consequences of one of the lesser-known provisions of the National Credit Act (NCA), which is that home buyers are not obliged to obtain their HOC from the bank that grants their home loan.

“Homeowners are now free to source their HOC from other insurers, but if they do, they pretty much have to accept the responsibility for updating it themselves, much as they have to manage their own car insurance and home contents insurance to ensure that their belongings are adequately covered.”

It is also important, Rademeyer says, for those who have paid off their homes not to let their HOC fall away. “Just because you are no longer making monthly bond repayments does not mean that you should stop paying HOC premiums.

“In fact, as you get older, and especially if you are retired and living on a fixed income, it is even more important to ensure that your home is fully insured and that you would be able to replace it if necessary.”

Schools now even more important in home choices

More and more family buyers want to live really close to good schools now, and this is really driving home sales in suburbs like Parkhurst in Johannesburg, Rondebosch in Cape Town, and Durban North, which are all known for their proximity to several excellent schools, and in gated estates like Dainfern and Cornwall Hill that have their own schools.

Consequently, says Shaun Rademeyer, CEO of BetterBond, South Africa’s leading mortgage origination group, this might be a good time for those who live in such areas but don’t have school going children to consider selling.

The main reason for the “edugration” trend is the huge demand for places in the top schools, which has forced most of them to impose strict rules about only taking new learners from their immediate “catchment” areas.

“Thus if you don’t live in the right suburb, your children probably won’t be able to go to the school of your choice.”

Another reason, he says, is the ever-rising petrol price, “which means that the cost of driving children to and from a distant school and to any extramural activities, added to the cost of commuting to work, could impact significantly on the household budget”.

This is why, if one examines the suburban buying patterns related to schools, properties within walking distance are “ideal” and generally attract a premium price. Thereafter as the radius of travelling distance extends from the focal point of the school, homes prices decline.

Similarly, home prices in estates with their own schools or very close to a sought-after institution tend to be higher than those in developments where parents still have to transport their children to school.

Related to this, says Rademeyer, another important consideration for family buyers is the range of extramural activities offered by their preferred schools. “If children are able to participate in their after-school sports and cultural activities on the school premises, this obviously cuts down on afternoon trips for parents – and if they and their friends can then walk or cycle home in a safe environment, so much the better.”