Be ready to service a bond
Buyers must ensure their financial profile is sound before committing to a home purchase
“PROSPECTIVE buyers need to start working on their financial profile as soon as possible to ensure that they stand the best chance of getting bond approval in the course of the year ahead,” Renprop Residential Resales divisional manager Debbie Justus-Ferns said.
The effects of the recent interest rate hike will be felt by consumers and will impact the property market moving into this year.
The Reserve Bank has been warning consumers that we are currently in a rising interest rate cycle, and will be for some time.
Many experts believe that we are likely to see further rate hikes during this year, which will continue to put financial pressure on consumers.
Rate hikes will influence affordability ratios and make it more difficult for prospective buyers to gain access to finance, RE/MAX regional director and CEO Adrian Goslett stated.
The following are a few tips for prospective buyers to ensure they are financially and bond-approval ready:
Disposable income is possibly the single most important factor that banks take into account when determining a home loan applicant’s purchasing power.
This means that potential buyers need to live within their means and work hard at paying down their debt in order to have as much disposable income available as possible,” Justus-Ferns explained.
She went on to add that financial institutions also looked at the risk profile of the industry and company in which the home loan applicant worked, in conjunction with their career history. These factors are then slanted against the industry average. It is important that you show career stability. is a culmination of things like setting a budget, setting financial goals and, importantly, working out how much you can afford to pay on the bond monthly.
“Budgeting, however, also means making financial provision for life after bond repayments,” she added.
Building up savings to be able to put a deposit on the property you want to buy is essential, as a deposit of 10% of the asking price is usually asked for. Also, the chance of you being granted a 100% home loan is slim, especially in the financial climate.
“I always suggest that young, first-time buyers save 5% and 10% of their monthly income.
“Aside from demonstrating good money management and having cash set aside for a deposit, savings will come in handy for the transfer costs, as well as for when unexpected events happen that don’t fall within their budget. Saving a set amount each month is just generally a very sound financial habit,” Justus-Ferns explained. payment tools that prospective buyers can make use of to make their task that much easier.
Added to that, buyers should make use of online tools with bond originators to help determine what bond amount they’d be pre-approved for.
“Prospective buyers should bear in mind that pre-approval isn’t a guarantee that they will be granted a bond, or even how much they will actually be granted, but it gives them a very good idea of the price range they should be shopping in,” Justus-Ferns said. It is essential that buyers are as honest as possible about their income and expenses.
“Any discrepancies will be picked up and may jeopardise the loan being granted,” Justus-Ferns revealed.
Buyers should also note that they need to be “SARS compliant”, ensure that the payslip submitted was correct and declare any assets and invest
ments.
‘The chance of you being granted a 100% home loan is slim’
This depends on the individual buyer and their financial situation. Regardless of the market or time of the year, if a buyer has a high debt-to-income ratio and doesn’t have the required deposits, they are not ready to enter the market.
Buyers should consider whether they can afford and sustain the financial obligation before making the commitment.
A buyer can use the resources available to them such as financial advisers, banks and bond origination companies, and this will give them estimated repayment figures based on bond requirements.
“Monthly bond repayments cannot be more than 30% of the total expenses and the majority of the first-time buyers will be required to provide a deposit of between 10% and 30% of the purchase price of their home before being granted finance,” Justus-Ferns said.