Buy­ers need more home loan choices

Weekend Argus (Saturday Edition) - - PROPERTY -

SOUTH Africa needs more home loan op­tions to make prop­erty own­er­ship more ac­ces­si­ble.

This is the view of Shaun Rade­meyer, chief ex­ec­u­tive of bond orig­i­na­tor Bet­terBond, who says the di­verse fi­nan­cial back­grounds and ca­pa­bil­i­ties of home buy­ers calls for a “greater va­ri­ety” of home loan pack­ages to suit dif­fer­ent types of bor­row­ers.

For most con­sumers, he notes, af­ford­abil­ity is not re­ally about the to­tal price but about the “ef­fec­tive cost”, or size of the monthly re­pay­ment.

“When it comes to ve­hi­cles, for ex­am­ple, they would rather fi­nance over 54 or 60 months and keep the in­stal­ment down than pay over 36 months and cut the to­tal cost of the item.

“With the av­er­age length of stay in a home hav­ing dropped from 10 to 15 years to five or seven years at most, con­sumers are be­gin­ning to think this way about home loans too – and look for ways to get the most home pos­si­ble for the low­est pos­si­ble de­posit and small­est pos­si­ble monthly re­pay­ment.”

This is what they are re­ally shop­ping for, he says. At the very least, this sug­gests the need for more loans struc­tured to be re­paid over 25 to 30 years in­stead of 20 years.

On the other hand, Rade­meyer says, home­buy­ers with no plans to move, who are per­haps near­ing re­tire­ment age or liv­ing on a fixed in­come and want to know their ex­act monthly pay­ments, would pre­fer loans at a fixed rate of in­ter­est for the long term.

“How­ever, at the mo­ment, bor­row­ers can usu­ally only f ix rates for a year or two, and they have to pay a

‘penalty’ in­ter­est rate that is 1% to 2% above the stan­dard home loan rate for seek­ing this kind of cer­tainty.”

Then there are prop­erty in­vestors who would prob­a­bly be de­lighted with the fi­nan­cial flex­i­bil­ity – and added cash flow – that would come from a mort­gage with an ini­tial in­ter­est-only pe­riod, he says.

“In­deed, the more we ex­plore this topic, the clearer it be­comes that lenders who are hop­ing to keep and ex­pand their home loan cus­tomer base re­ally need to be­come more in­no­va­tive and flex­i­ble with their prod­uct of­fer­ings – and to make bet­ter use of in­for­ma­tion pro­vided by orig­i­na­tors such as Bet­terBond to be­come more re­spon­sive to mar­ket de­mand.” Rade­meyer says lo­cal lenders could learn from banks in the UK and the US, which are used to com­pet­ing for home loan busi­ness and con­stantly com­ing up with new loan op­tions de­signed to ap­peal to spe­cific types or groups of bor­row­ers, and pro­mot­ing them to the orig­i­na­tors and loan bro­kers who are in touch with con­sumers. “In Aus­tralia there are more than 1 000 home loan vari­ants avail­able at any one time, the idea be­ing to make home own­er­ship as ac­ces­si­ble to as many peo­ple as pos­si­ble. This type of flex­i­bil­ity in no way in­ter­feres with con­sumer pro­tec­tion pro­vided for in the Na­tional Credit Act and the Con­sumer Pro­tec­tion Act. “The more le­git­i­mate loan op­tions there are and the closer ties lenders have with orig­i­na­tors who are ef­fec­tively their mar­keters, the less likely bor­row­ers are to be bitten by loan sharks.” – Prop­erty Writer

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