Have the banks loosened their purse strings?
Date: 2010-07-08
Since March 2010 we’ve seen a slight increase in trading activity in the property industry, coupled by a year-on-year real price increase of 7.2%. This slight tremor may be attributed to the lowest repo rate since 1981. Is this a slow, sustainable recovery of the property market? It all hangs in a balance – at the hands of the big 4!While the banks advertise that they offer 100% bonds, the success rate of such bonds is a mere 3% to 4%. Most buyers are still required to put down a deposit. The higher the deposit, the more favourable the interest rates and the better the chance of obtaining a bond approval.
The banks’ internal scoring systems have also been tightened. If you don’t meet their minimum scoring, which has been pre-programmed into their computer system, your application will not even meet a human being. You will immediately receive a non-negotiable “system decline”.
Should you receive income other than your basic salary, for example, commission or overtime, certain banks will only take 50% of your six monthly average income into account when determining your affordability.
The buy-to-let product is a thing of the past. Some banks are not taking rental income or potential rental income into account at all, while others will only consider 40% of the rental income.
If you are one of those property investors who have successfully managed to build an income earning portfolio, you will be shocked to learn that the banks are hesitant to finance you based on your rental income only. An application of salaried earner, with a potential of being retrenched, will stand a better chance of being successful.
The National Credit Act has far too often recklessly been blamed as the biggest contributor of the low growth in the mortgage bond market. One has to ask the question, if one can prove one can afford a mortgage bond in terms of the NCA, as that is all that is required, then why are applications so easily declined?
The banks credit criteria differ from bank to bank. While some banks will be more flexible in certain circumstances; others will apply their criteria stringently. The average individual does not have access to this information and won’t know which bank is more likely to approve their application. On your own, it’s trial and error, time consuming and frustrating as you battled your way through endless amount of credit jargon.
Tips for improving your chances of a home loan
1) Save for a deposit
2) Check your credit record regular and rectify any problems immediately.
3) If you have credit accounts that must be paid monthly, put debit orders in place.
4) Ensure that your full salary is deposited into your account monthly. Don’t accept cash as an alternative.
5) Always have sufficient funds to cover all the debits being deducted off your transaction bank account.
6) If you have credit limits on your credit cards that you don’t use, reduce them.
7) If you are self-employed, have your management accounts drawn up at least every alternate month and financials within 3 months of your financial year end.
8) If you have lease agreements that have been renewed, obtain addendums to the original lease agreements reflecting the new term of the lease.
9) Pay your taxes
10) Use the services of a tenacious bond originator who is honest and knowledgeable of the banks’ credit requirements.
Until the banks are willing to provide finance to those who can prove their ability to service such finance, without any fancy scoring systems and unrealistic expectations, the property market will remain stunted, to the detriment of many investors, home owners, entrepreneurs and the bank themselves. A case of cutting their nose to spite their face!