There is now very little doubt that in the year ahead the banks will be forced to be more careful than ever before in the granting of home loans.
This is according to Dawn van Alphen, CEO of the Cape-based bond originators, Bond Magic, who says faced with rising interest rates and an economy that is very close to being in a full-blooded recession – as well as with consumers countrywide finding it more and more difficult to meet their commitments – the banks are conscious that the risks attached to loans of all kinds have increased significantly.
“They will, therefore, be checking even more scrupulously a whole range of factors relating to the applicant, including the security of his employment, the extent of his debts and other commitments, his credit records for the last five years or more and, perhaps the most crucial of all, the percentage mortgage bond that is required,” says Van Alphen.
“Any evidence of reckless or irresponsible spending will make the securing of a loan still more difficult.”
In the coming year, she says 100% loans may well be restricted to first-time home buyers, and very few will qualify for sub-prime loans.
“The vast majority of borrowers will, in fact, find themselves paying 0.5% to 2% above prime,” she says
“And any applicant whose accounts show that, after paying his bond and meeting his other commitments, he has very little surplus cash left, will probably have to scale down his loan requirements.”
In these conditions, Van Alphen says the role of the bond originator will be more crucial than ever – especially if, as every good originator does, he or she deals with all the banks to get the best available deals for clients.
“It is important to realise that origination companies usually offer a free prequalification service to potential home buyers. This ensures that the applicant avoids any disappointment in the feedback from the banks, and it significantly increases his chance of obtaining a mortgage bond,” she says.
“The originator – who is highly experienced in this work – does all negotiations with the banks. Once the banks have responded, the purchaser will be given a choice between offers and approvals.”
Van Alphen says among the tasks that good originators will now take on will be that of showing the applicants how to seriously save.
“All too often middle-class South Africans, especially those experiencing moderate wealth for the first time, have convinced themselves that saving is simply impossible on their incomes,” she says.
“However, our experience as bond originators is that for many this is not true. If people take the decision to cut out a wide range non-essential expenses and focus on their fundamental needs, they almost invariably discover that they can save – even in tough economic times – and, by getting on the property owning ladder, in time they end up with a highly satisfactory asset base.”