The Mortgage & Consumer Credit Magazine Issue 33

ISSUE 33 | July/August 2013 R39.95 incl. VAT

S A’ S L E A D I N G H O M E L O A N & C R E D I T M A N A G E M E N T M A G A Z I N E

Lessons learnt from the recession

What did homeowners learn from the banking and property crisis?

SA Property valuation apathy

Do homeowners no longer believe it is worth objecting?

Is there a perfect mortgage?

Whatever your definition it has now become a very different animal.

Unsecured lending – on the edge

A new lending monster is beginning to show signs of cracking.

• • • • • • • • •

BORROWER EDUCATION

Digging your way out of debt How to choose your home loan Guide to home buying process National house prices 10 Key financial property terms Saving thousands on your mortgage Understanding the Property Cycle SA rental payment monitor Wealth creation and preservation

Finding the right home can be stressful.

Securing a home loan shouldn’t be.

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DIGITAL EDITION READ SA’S Leading HOME LOAN & Credit MANAGEMENT MAGAZINE BEFORE ANYONE ELSE.

• Be the first to read each issue of The Mortgage & Consumer Credit Magazine with the new digital edition on our website • Digital edition comprises the complete print magazine – nothing taken away • Free access to The Mortgage & Consumer Credit Magazine archives for a limited period

1

View it now at www.mccm.co.za

T HE Mo rtgage MAGAZ I NE F EB RUARY/MAR CH 2009

CONTENTS

S A’ S L E A D I N G H O M E L O A N & C R E D I T M A N A G E M E N T M A G A Z I N E

J U LY / A U G U S T 2 0 1 3 • I S S U E 3 3

FEATURES

08

THE PERFECT HOME LOAN

Is there such a thing as the perfect mortgage? To some it would be a bond that did not become a burden to them, or one which they could pay off fairly quickly. How would you define it?

16

LESSONS LEARNT FROM THE RECESSION

It is nearly five years since the worldwide recession hit first-world economies in 2008 and still there are few lights on the horison. Have any lessons been learnt and are banks and other financial roleplayers showing signs of changed attitudes?

FOCUS ARTICLES

26

SA PROPERTY VALUATION APATHY

34

GAS AND FENCING CERTIFICATES

Contrary to past experience hardly anyone objected to the new municipal property valuations that came into effect in July2013.

What has been the cause of the apathy among homeowners this time round?

It has become standard practice (though not law) for sellers to issue normal electrical compliance certificates; now you should extend this obligation to include gas and fencing installations.

42

UNSECURED LENDING – ON THE EDGE

A new lending monster has arisen which is beginning to show signs of cracking, leading potentially to new levels of unmanageable indebtedness.

38

THE LATEST HOME LOAN INTEREST RATES, MORTGAGE TRENDS AND MARKET SHARE

Make sure you track all the interest rate movements, mortgage trends and market share of key lenders with this information.

40

We have seen how the overseas ‘mortgage meltdown’ created a worldwide financial crisis – make sure you know what’s happening with international property markets; USA, UK, Australia, Canada and New Zealand.

47 50

MORTGAGE GLOSSARY

Simplifies the most commonly used home loan and finance terms making it easier for you when buying and managing your property.

BORROWER EDUCATION

18

YOU AND YOUR BANK

You bank fulfills its obligations to you through the Code of Banking Practice (“the Code”) which sets out the minimum standards for service and conduct you can expect. Manage your relationship better by knowing what is expected of you as a client.

24

06 12

28

Consumers aren’t in a party mood.

SA RENTAL PAYMENT MONITOR

Identify different areas of risk when you rent out your property. Find out how tenants pay their rent on a monthly basis and avoid the pitfalls.

30

SA’S NATIONAL HOUSE PRICES

In-depth information on house prices across all regions in South Africa, plus key insights into mortgage trends.

TEN PROPERTY FINANCIAL TERMS YOU NEED TO UNDERSTAND

Make sure you understand these financial terms that could mean the difference between ‘cashing -in’ or ‘cashing-out.’

KNOWLEDGE & RESOURCES PRE-APPROVED

INTERNATIONAL RESIDENTIAL PROPERTY PRICES, RATES AND ECONOMIC INSIGHTS

HOW TO CHOOSE YOUR HOME LOAN

Tough economic times call for smart home loan choices – How to get the home loan you deserve.

HOME BUYING PROCESS You ownership ‘compass’ that explains everything.

36

THE PROPERTY CLOCK

44

DIGGING YOUR WAY OUT OF DEBT

As a homeowner you need to have the all the facts at your finger tips – know where the property market is in its cycle before you make property decisions.

If you feel your debts have escalated faster than your income, here’s how to reduce them.

YOUR WEALTH

10

UNDERSTANDING THE WEALTH CREATION & PRESERVATION ‘LIFE CYCLE’

Creating and preserving wealth as a homeowner is an ongoing process that you need to manage.

YOUR CREDIT

20 22

YOUR GUIDE TO CONSUMER RIGHTS Understanding and enforcing your rights as a consumer.

MONITORING, MANAGING AND FIXING YOUR CREDIT RATING

Economic times are tough and credit is harder to get. A good credit rating is vital in these times.

51

NUMBERS DON”T LIE How your credit score is calculated.

CURRENT VOICES

15

SA HOME LOANS ENTERS THE AFFORDABLE HOUSING MARKET

32

RENTING SECURELY

The beginning of 2013 marked SA Home Loans entry into the affordable housing market with the launch of their lending category designed for homeowners with household incomes below R18 000. Acknowledging the challenges faced by this market in saving for large deposits, Zakheni Dlamini, Head: Affordable Housing, SA Home Loans indicates that they will be offering 100% loans to qualifying customers, with a 20 year term variable interest rate loan and have also reduced their minimum property size to accommodate smaller properties.

Data collated by property services group Just Letting Property reflected a 26% increase in the number of buy-to-let investors nationally contracting to receive guaranteed rental income should tenants default on their monthly commitments. Just Letting Property CEO John Roberts says this indicated the impact of the recession in that investors had been bitten by non-payments or struggled with tenants refusing to move out of their rented properties, secure in the knowledge that legal costs involved in removing them were onerous.

Executive Editor Dalton Meyer • Editor John Gilchrist • Editorial Board Dalton Meyer, John Gilchrist, Alan Margolis • Illustrations Dov Fedler • Statistics Luke Meyer • Art Director Ronel van Heerden ronel@mccm.co.za • Executive Directors Dalton Meyer, Alan Margolis • Advertising & Sales Manager Dalton Meyer dalton@mccm.co.za Address: 18A Campbell Street, Waverley, Johannesburg, 2090 • 22 Totius Road, Welgemoed, Bellville, 7530 • Editorial enquiries dalton@mccm.co.za • Subscriptions info@mccm.co.za • website www.mccm.co.za All material in this publication is copyright © The Mortgage & Consumer Credit MagazineTM 2007-2012 ISSN 1996-2894. No reproduction of any part of this publication is allowed without prior permission of the owner. While due care has been taken to ensure accuracy of editorial content, no responsibility can be taken for errors and omissions. Readers are advised to check information published with individual lending institutions, and to take legal advice, where appropriate, before entering into agreements. All interest rates are correct at the time of going to press.

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TH E MO RTGAGE & C O NSUMER CREDI T MAG AZ I NE JULY/AUG UST 2013

Stay faithful to your dreams 

    

   

Breathe a sigh of relief 

sales@nationwidepropetynetwork.co.za 

0861 66 66 76 

>>> PRE-APPROVED

Consumers aren’t in a party mood Consumer confidence, or rather the lack of it, has dropped to its owners. We also cover this subject in this issue.

Property sellers continued to burdened with new compliance lowest level since 2003 and shows no signs of improving in the near future. The rand’s exchange value has receded heavily against most regulations. We look at two of the most recent changes in this issue. major world currencies, favouring exports but very little else. The Legislation has been introduced to protect occupants of properties property market remains depressed for the sixth year in succession. against the possibilities of serious injury from defective gas appliances and electric fences. Sellers need to know what their obligations are There’s very little for most consumers to get excited about.

In the meantime commercial banks have pursued their marketing in these two cases and to what extent the law now obliges them to of unsecured loans, increasing the indebtedness of South African acquire approved compliance certificates.

Local sport continues to distract home owners, tenants and consumers to record levels. Desperate for increased profits from high-interest loans and oblivious to the effect on the national youngsters from the ongoing depressing economic conditions. Who economy, banks continue to pump private loans, credit card cares if we go insolvent and the house gets dispossessed as long as the Boks beat the All Blacks? The tragedy advances and business overdrafts in their that even that rarely happens these days. pursuit of handsome profits that will keep Banks continue to isStill, we live in one of the freest countries their shareholders happy. None of them on earth and most South Africans who show any awareness or concern for the pump private loans, credit travel abroad come home relieved to be further debilitating effect this will have on card advances and business back here. Even on the sports field there’s any chances of an economic recovery. In hope, though some of it may be this issue we look again at the effects of overdrafts in their pursuit of always farfetched. What are the odds against the unsecured lending on the economy at any following: the Proteas winning a knockout time in the foreseeable future. handsome profits. match in a major ODI tournament, the We also look at the concept of a perfect mortgage. If such a thing exists it is far more likely to be available Sharks or the Stormers winning the Super 15, or Bafana Bafana in better times than these but, if you are sufficiently qualified for a winning anything?

In one week Chuck Norris fought off the Mafi a, Mexican drug sizeable home loan, you can still obtain what many would describe as the ideal mortgage. Banks remain disinclined to lend freely in barons, and Indian warriors attacking his homestead. His blonde the mortgage market but they are responsive to applications for cookie exclaimed ‘I’m so proud of you, Chuck baby - does nothing home loans from customers who have good credit records and scare you?’ Chuck answered ‘Nothing!’ Minutes later he lifted a letter in his post box and began to shiver and shake. His sweetheart said ‘I adequate salaries.

Every five years local municipalities review their property though nothing scares you’ to which he replied ‘This does. This is valuations and assessment rates. This year the process once again real scary. They want me to coach Bafana Bafana!’ turned full circle but, despite the usual media hype, relatively few property owners actually bothered to object to the revised Enjoy this issue. valuations. Was this simply a case of owner-apathy and, if so, what were the reasons for it? Or – dare we even suggest it – were the new valuations actually reasonable and acceptable? The process passed John Gilchrist without much ado and life will continue as normal for most home Editor

Think carefully before securing other debts against your home. Your home or property may be repossessed if you do not keep up repayments on your mortgage.

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T HE MO RTGAGE & CONSUMER CREDI T MAG AZ I NE JULY/AUGU ST 2013

EBT SURELY, ‘D REVIEW’ IS ONLY NOT THE ANSWER!

REPOSTOP

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– MEDIATE!

Are you struggling to keep up with your mortgage payments? Is your mortgage in arrears, or about to be?

Are you wondering if there is a way to solve the problem?

DON’T LET YOUR HOME SLIP THROUGH YOUR FINGERS

With the help of REPOSTOP we’ll identify your rights and choices and provide you with options and solutions to stop your house from being repossessed.

REPOSTOP

CAN HELP YOU

IN THE FOLLOWING WAYS

∙ Possible home repossession process is stopped early; suspended; avoided – the sooner you act the more of these options will be available to you. ∙ Our independent mediator network will look for a solution that is acceptable to you and your mortgage lender. ∙ Know and enforce your rights. ∙ Develop practical solutions that make financial sense to all parties.

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FREQUENTLY ASKED QUESTIONS Q: Who is ?

A: is a panel of independent professionals specializing in debt resolution and negotiation with banks and other lenders.

Q: What is REPOSTOP ?

A: REPOSTOP is a service, established as an emergency advice portal, by .

Q: Why should I use REPOSTOP ?

A: REPOSTOP is a product that provides trained professionals to act between you and your bank. These professionals will negotiate and provide alternative solutions to try to prevent you losing your property.

Q: What type of services do you offer?

A: Depending on your individual circumstances, we analyse your position and are then able to advise on the best way forward, for example, obtain moratoriums for repayment, mediate solutions with your credit provider, refer you to a debt counsellor or attorney if necessary, assist with debt consolidation.

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A: No. Our panel of attorneys act in an advisory capacity and act on your behalf in the negotiation process where possible. We will refer you to attorneys should you require legal representation.

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>>> LESSONS LEARNT

The perfect

home loan Is there such a thing as the perfect mortgage? And if there is, how would you define it?

T

o some folk it would be a bond that did not in time become a burden to them. To others it would be one which they could pay off fairly quickly.

Yet others would define it as one with a low interest rate to make the monthly payments manageable. Some borrowers, desiring to get that dream home they’ve always coveted, would define it as a loan which makes the dream come true.

Finally, and this was often the case during the now-distant boom years, it was a loan which would be easily granted on a low deposit base, one freely given without too many questions about whether the borrower could really afford it, and on a discounted interestrepayment.

Why perfect loans are now difficult to obtain Whatever anyone’s definition of a perfect mortgage might have been in the past, it has now become a very different animal and has to be defined more narrowly. Firstly, the borrower must actually be able to get the loan. The home loan

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th e mo rtgage & c o nsumer credi t mag az i ne July/aug ust 2013

approval process has become stricter in the past five years and an adequate monthly payslip won’t be enough to secure that highly sought-after bond. Eight years ago bonds were being granted freely without the lenders asking too many questions about the client’s ability or willingness to repay them. Now lenders are cautious about whom they lend to and 100% loans are very difficult to obtain.

Interest rates were also easy to negotiate in the boom years.

It wasn’t hard for the average buyer to get up to 2% offprime. Today you will be lucky to get a loan at nothing less than the prime rate itself. Banks are commonly offering loans at up to 2% above prime. It may be argued that rates are still very low by historical standards and still don’t look like rising in the foreseeable future, but when they do those with aboveprime bonds will find the rate climbing steeply and you can be sure your lender will box you in to the above-prime rate offered to you for the full term of the loan (usually twenty years) irrespective of any

>>> improvement in the economy in the meantime.

The First Step: Proper Documentation Getting a perfect loan today, one that will match a customer’s needs as well as his ability to repay it, is something most people are going to have to wait very patiently for.

Perfect loans have to be earned.

Lenders want more than just a payslip today.You will be asked for evidence of other credit agreements (appliance contracts, car hire-purchases, etc). Proof of investments, recent bank statements and other documents disclosing your recent credit history may be required. Alternatively your ability to provide documentary proof of your credit-worthiness in any way you can may be the dividing line between obtaining a perfect loan and losing it.

If you have been the victim of a foreclosure at any time, or if you have no record of any attempt to create a healthy savings base, your lender may respond with a “we have a problem” sticker. This is where most people are now realising that it may take time for them to get the loan they want so

A perfect loan can best be defined as one which you can comfortably afford to repay, which meets your basic needs, which won’t give you headaches.

much. Graduation certificates have to be worked for, and qualifying documentation for an ideal home loan today also has to be earned and created.

Lenders know what they are looking for – don’t send them your matric certificate when they are enquiring about post-graduate degrees. Stable employment records, proof of regular repayment of other credit agreements over many years, and other similar giltedged documents take time to acquire. The only way to qualify for that perfect loan is to work patiently towards it.

Shopping around doesn’t help much today Fairly recently you could engage a mortgage originator and spin your loan application up to a number of lenders at once. In a highly competitive market they were willing to stretch themselves by giving low-rate and low-deposit loans.

This doesn’t work anymore.

Banks are not competing much with each other in the home loan market today.You won’t get the perfect loan by extracting it out of an over-keen lender.Your best bet nowadays is to have an excellent relationship with

LESSONS LEARNT

Eight years ago bonds were being granted freely without the lenders asking too many questions about the client’s ability or willingness to repay them. Now lenders are cautious about whom they lend to.

still willing to grant 100% loans. The key factors are a known credit-worthiness, a sustained adequate monthly income, and a limited extension of credit in other areas. The data base anticipated in the National Credit Act has not yet materialised and lenders are still having to do their own credit checks, so it helps greatly to be able to supply your own proof of a healthy credit track record.

Providing security – Keep your ambitions down On the whole banks are only granting 70% to 90% loans. This means you are going to have to provide a sizeable deposit to get your dream home. One of the best ways of doing this is to minimise your ambitions and expectations. Too many

needs, which won’t give you headaches if interest rates should rise (as they surely will at sometime in the not-toodistant future), and which you can repay in just a few years if your monthly income should increase sufficiently. It is not the loan which enables you to buy the home that matches your high expectations or extravagant living standards.You may need to delay your loan application for a few years just to get to this position, but you are unlikely to regret it.

In a way the perfect mortgage doesn’t exist. What will make your home loan suitable to you depends on a number of factors – your income, the quality of the home you want to buy, your repayment limits and your

Today you will be lucky to get a loan at less than the prime rate itself. your own bank. From timeto-time certain banks advise that 80%-plus loans will only be considered for existing customers. Others refuse to deal with non-customers at all. It is important to create a healthy track record with your own bank. Avoid late payments, debit card defaults and the like.

Once again it comes down to being patient and taking time to create the credit-worthiness and affordability needed for that ideal home loan. In the right circumstances banks are

want too much too quickly. Be willing to buy a smaller, less opulent home than you might ideally wish to have. Everything will come far more within a manageable range if you do.

Monthly instalments will be lower, your required deposit will be less, rate increases will be easier to handle, and you’ll sleep more peacefully in a simpler home.

A perfect loan can best be defined as one which you can comfortably afford to repay, which meets your basic

own personal circumstances.

A bit of time spent assessing these sensibly will pay off in the long run. Even though the property market still remains somewhat depressed and home loans are hard to come by, this may prove to be the ideal time to weigh up your options as you prepare for a trip to your local bank. There’s never likely to be a better time to balance your repayment options and loan affordability than when the chips are down and lending criteria are strict. m

t h e m ort ga ge & con su m e r cr e d i t m a ga zi n e J u ly / A u gus t 2 0 1 3

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>>> BORROW ER EDUCATION: MANAGING & PROTECTING YOUR WEALTH

Understanding the Wealth Creation F

or most homeowners their primary residence represents a substantial portion of the wealth they have created over many years, possibly even representing the cornerstone of their accumulated wealth. Creating and preserving wealth throughout a lifetime is an ongoing process which requires the application of different strategies and tactics as we move from and through life’s different stages. ‘Understanding the Wealth Creation and Wealth Preservation Life Cycle’ is designed to give you an overview and insight into the important stages of wealth accumulation and the protection of your wealth.

What is “Wealth Creation?”

Wealth Creation can be defined as the act of making a person financially richer and more successful. Methods that can be employed to achieve this are (amongst others), becoming gainfully employed, re-investing income earned, saving, buying assets that will increase in value over time (such as property), buying into profitable ventures, investing in stocks and shares (directly or indirectly), participating in unit trusts, participating in other diversified investments, etc.

1

The Formative Stage

This phase of life could be called the Formative Stage, during which you are educated, and often leads to the first employment opportunity which is usually accompanied by the first ventures into savings schemes, and sees the start of asset purchases.

Wealth Creation

Wealth Preservation

• Open first personal banking account • Enter into first savings-based insurance policy • Join company pension fund

• Group life and disability cover through employer scheme • Insure first asset/s • Join company medical aid scheme

4

The Consolidation Stage

This phase of life could be called the Consolidation Stage, during which you start preparing for retirement.

Scaling-down from a homeownership perspective takes place, and investing lump sum payments and investments into income bearing instruments.

Wealth Creation

Wealth Preservation

• Consolidate life cover and increase savings investments.

• Start selling-off investments in other business opportunities.

• Invest in shorter-term, low-risk investments.

• Insure against major medical expenses • Ensure healthcare cover is suitable going into retirement.

• Invest surplus cash resources in low-risk schemes.

>>> REMEMBER

&

1 4

The Formative Stage

The Consolidation Stage

The information given here is a generalization, as no two people have the same needs throughout their lifetime, however the principles remain the same as far as Wealth Creation is concerned; • in your younger years you can usually afford to take a degrees of risk, • in your later years you need to be more conservative and when considering Wealth Preservation, there is really only one thing to consider; • irrespective of your age, make sure you have enough insurance in place to cover all eventualities.

Failure to do so could be catastrophic.

“Committed to identifying and structuring the right insurance and investment solutions for each of our clients”

&

>>> BORROWER EDUCATION: MANAGING & PROTECTING YOUR WEALTH

Wealth Preservation

‘Life Cycle’ What is “Wealth Preservation?”

Wealth Preservation can be defined as the process of working to protect wealth created, so that it is not diminished , eroded or destroyed. The way to do this is to ensure that all assets are insured, ensure that all credit agreements are adequately insured, ensure that you have suitable insurance in place in order to cover loss of income through disability or retrenchment, total and temporary disability, death, business insurance, suitable healthcare cover, etc.

2 3

The Accumulative Stage

The Accumulative Stage

2

This phase of life could be called the Accumulative Stage, during which you get married, start accumulating assets (car, house, etc) and invariably leads to promotions at work or a change in job. There are now 2 streams of income so more opportunity to save.

Wealth Creation

Wealth Preservation

• Invest more into savings based instruments • Buy first home and additional assets • Upgrade bank facility to include credit facilities, etc

• Additional life and disability cover & include spouse • Insure house and household contents, as well as bond • Upgrade, or top-up cover on medical aid scheme

The Growth Stage

The Growth Stage

3

This phase of life could be called the Growth Stage, during which you start a family, accumulate a few more assets, become settled in your chosen career, get involved in few business opportunities and start making provision for retirement.

Wealth Creation

Wealth Preservation

• Consider additional retirement funding options.

• Invest in other business opportunities.

• Invest in stocks and shares, unit trusts, and other diversified investments, etc.

• Insure against major medical expenses • Insure additional assets • Insure against trauma, retrenchment, and include business insurance such as Key- Man & Partnership Insurance, Deferred Compensation, etc

>>> TOP TIPS • You are never too young to start saving • Most people retire with insufficient funds to maintain their pre-retirement lifestyles • Failing to plan is planning to fail. Insurance planning is an ongoing process and one needs to make sure that one is dealing with a reputable and reliable advisor.

An overall financial plan should include; Householders & Homeowners insurance, Credit Life insurance, Life & Disability insurance, Income Replacement insurance, Retrenchment insurance, Medical Aid, Major Medical Expenses cover and other diversified investments.

Life Insurance • Investment Planning • Retirement Planning Short-Term Personal & Commercial • Medical Aid • Tax Consulting Corporate Benefits / Group Schemes • Property Sales & Rentals / Holiday Letting Estate Planning • Mortgage Origination • Bridging Finance

Tel: 011 463 2794 Fax: 086 510 9286 info@olemera.com PO Box 3052 Northriding, 2162 www.olemera.com

It’s more than just a Bond

The name is Bond, Agent Bond. The mission?

Assisting you to get a BetterBond.

At BetterBond, our consultants will facilitate your home loan application process from start to finish and ensure that you get the best deal to finance your dream home - at no cost to you.

We offer a wide range of value-added financial services products to assist you with not only your home loan application, but also your bridging finance, personal loans, motor and household insurance needs and mortgage protection.

BetterBond Offices: Head Office (011) 516-5500 : Bloemfontein (051) 430-7888 : Centurion (012) 663-2637 : Eastern Cape (041) 374-0950 JHB South/East (011) 896-5230 : JHB North/West (011) 476-9002 KwaZulu Natal (031) 277-9000 : Non-Metro - Rustenburg (014) 592-2825 : Vaal (016) 982-4363 Western Cape(021) 557-9401 : www.betterbond.co.za

LEGAL HELP >>> ESTATE AGENT TALK: Affordable >>>Housing

SA Home Loans enters the

affordable

housing market T

he beginning of 2013 marked our entry into the affordable housing market with the launch of our lending category designed for homeowners with household incomes below R18 000.

We have all either experienced or observed the emotions attached to the purchase of a first house. It is not just a house, it is our first home and signals a new beginning for the family and often the realisation of a longheld dream to own a home.

Playing a role in making this possible for these families, makes our job as a home loan provider that much more rewarding.

South Africa is rated as one of the most unequal societies in the world. Home ownership plays a big role in the wealth creation of households, and can help reduce

the levels of income inequality.

Remember the boom years of the property market, and the wealth creation that occurred as a result. Imagine how much more wealth would have been created if we had managed to deliver affordable houses to more South African households!

Acknowledging the challenges faced by this market in saving for large deposits, we will be offering 100% loans to qualifying customers, with a 20 year term variable interest rate loan. We have also reduced our minimum property size to accommodate smaller properties.

Affordable housing is a huge segment of our housing market, in fact, properties valued between R250 000 and R500 000 make up more than a quarter of all registered residential properties in South

Zakheni Dlamini Head: Affordable Housing

Africa. Despite this, there remains a massive shortage of decent affordable housing, and the demand for affordable housing grows each year with the formation of new households. This demand for housing has not been matched by a similar appetite in the provision of end-user finance by all home loan providers.

As one can imagine, affordable housing carries a stigma of high risk and this makes fundraising a challenging exercise.

Nevertheless, we have leveraged

our fundraising expertise and managed to secure sufficient funding to make us a sizeable player in the affordable housing space and, more importantly, our funding structure ensures that we will be a player in this market for the long term.

In short, we are open for affordable housing business and we are very excited to have the opportunity to wow affordable housing clients with our amazing service. With your continued support, we know we can do this!

t h e m ort ga ge & con su m e r cr e d i t m a ga zi n e J u ly / A u gu st 2 0 1 3

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>>> STILL SEARCHING

Lessons

learnt from the

recession It is nearly five years since the worldwide recession hit first-world economies in 2008 and still there are few lights on the horison. Have any lessons been learnt and are banks and other financial roleplayers showing signs of changed attitudes?

M

ost European countries are struggling with overindebtedness that is preventing consumers from pulling out of their credit-bondages. Disposable income continues to go mainly towards servicing their heavy debts and little remains to spend on holidays away from home or to invest as capital in new investments. Most of their monthly repayments are going towards paying off accruing interest and there are few exit doors to extricate them from the debt-traps they fell into during the good years.

Bursting Bubbles: The current economic malady A number of economic analysts

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have complained recently that the major problem has been a cycle of boom-bust see-saws that are increasingly infecting first-world economies. The trend in past ages (especially for the generations prior to the 20th century) was for gradual growth based on increased technological knowledge and basic hard work. Since the advent of substantial lending to consumers, especially mortgage loans, the advancement of economies has become heavily dependent on the spend now-pay later principle. This has spurred bubbles as freely-available loans have stirred false booms.

No less than sixty years ago the well-known economist John Galbraith, assessing the causes

the mo rtgage & c onsumer credi t mag az i ne July/Aug u st 2013

of the Great Depression of 1929, said that “A bubble comes from rising prices, whether of stocks, real estate, works of art or anything else. A price increase attracts attention and buyers, which results in even higher prices. Thus, expectations are justified by the very action that sends prices up. The process continues and optimism about the market effect is the order of the day. Prices climb even higher.

Then, for reasons that endlessly will be debated, the bubble bursts.” Today the prime cause is easy to define – buyers are using borrowed money to get into the markets and, creating demands out of proportion to the supply, are driving themselves into levels of indebtedness that they

cannot hope to manage once the ceiling has been breached.

In all economies the resources needed to sustain economic growth are limited and far too often the bubble goes over the sustainability level before anyone realises it. A boozer consuming six beers in a row will know the after-effects only too well – he only realises he has consumed enough when he has already drunk far too much.

Boozers call these after-effects hangovers – economists call them recessions. The latter tend to last much longer and are not easily reversed.

How the US economy went into overdrive One of the great errors in good

>>> times is to forget past precedents and presume that the current boom can go on indefinitely.

Greedy profiteers stimulate the markets, pumping up prices.

Banks lend freely, never stopping to realise that the heat driving the current economic energies is cyclical – the actual money circulating frenetically and being lent out to eager borrowers is the same money just going round in ever-quicker circles. In the USA debt levels increased dramatically in the boom years, the lending criteria of banks loosened up, and house prices went through the roof. Driven by the false assumption that house prices never go down, the momentum increased.

Commercial banks plunged into subprime lending to new buyers who previously couldn’t hope to qualify for home loans of any description. Larger mortgages and increasing loan advances pushed the US economy ever closer to the cliff-edges. The bubble had to burst and, when it did, it spilt bubble-gum everywhere. Banks like Lehman Brothers collapsed.

Others were swallowed up while the central government struggled to bailout the remaining stragglers. All of a

Money lenders have to be told that reckless unsecured lending on high interest rates, a current shift in their credit-targeting, has to be heavily restrained.

sudden the limits of the actual money supply in the country made their mark. House prices crashed, unemployment rose to 10%, and homeowners licked their wounds.

What lessons may have been learnt?

The US economy has struggled since 2008 to recover though the property market, buoyed by more realistic price levels, has shown positive signs of real growth. The Federal Reserve (the USA’s equivalent of our Reserve Bank) has stepped in to prevent a double-dip recession. It has resisted the urge to increase interest rates as a short-term shock step to restrain consumer spending.

Inflation has been kept down, giving consumers and debtors some breathing-space. Banks have introduced more stringent lending standards, discouraging

STILL SEARCHING

A number of economic analysts have complained recently that the major problem has been a cycle of boom-bust see-saws that are increasingly infecting first-world economies.

reckless lending, has not had the desired effect. Lenders have brazenly ignored its intentions, increasing their unsecured percentages to new levels raising the spectre of possible banking collapses.

Austerity measures and other economic nightmares In Europe the countries most affected by the recession were the Mediterranean

similar short cuts. In South Africa today almost one in two income-earners have adverse credit records as a result of the follies of excessive lending based on greedy borrowing.

Unfortunately there are few signs that lenders have initiated lending policies based on long-term foresight rather than the whims of the moment. South African banks have swung from splashing

The boom-bust scenario will to continue with the emphasis on the bust-side. speculative investment. The Federal Reserve has balanced inflation-checking with increased employment. Slowly but surely the US economy is recovering.

There are other precautions, however, that must be enforced if the boom-bust cycles of recent decades are to be permanently shackled. Money lenders have to be told that reckless unsecured lending on high interest rates, a current shift in their credit-targeting, has to be heavily restrained. The dangers of mass debt-defaulting are being seriously aggravated by this senseless alternative to the low-interest rate mortgage lending that inflated lender’s books in the good years. If necessary, legislation will have to be introduced to harness this dangerous practice. Locally the introduction of the National Credit Act, designed to restrain

states Portugal, Spain, Italy and especially Greece. The island of Cyprus earned its own inclusion in this list of economic lame ducks. Greece has introduced severe austerity measures to stem public spending and, particularly, reckless borrowing. The move has proved to be very unpopular among local consumers who refuse to believe that warm clothing is required during economic winters. The real nightmare, however, remains reckless indebtedness where those affected cannot see beyond contributing all their monthly disposable income towards the suffocating interest accruing on their debts. In the USA reckless lending in the boom years included weak credit checks, “liar loans” (where application details were not properly verified), 100% subprime loans, and other

out on low-interest mortgages to flushing private loans at high interest rates without any asset-backed securities. The boom-bust scenario is fated to continue with the emphasis heavily on the bust-side. If amendments to the National Credit Act cannot have the desired effect, who knows what will motivate local lenders to tread cautiously into the future as the Federal Reserve is doing in the USA. Introducing strict lending criteria for mortgage loans is not going to help while available cash continues to flow freely to those who cannot afford to buy asset-backed securities. Unless common sense and a willingness to plan carefully, assessing the woes of the recent past, becomes part of our lending policies, consumers can expect the uncertainties of the present to create new headaches in the future. m

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>>> BORROW ER EDUCATION: YOU AND YOUR BANK

How to manage your Consumer protection is an essential element of the dynamic and challenging business environment in which banks operate. A critical tool through which banks fulfill their obligations to you is the Code of Banking Practice (“the Code”), which sets out the minimum standards for service and conduct you can expect from your bank regarding the services and products it offers, how the bank would like to relate to you, and the rights and obligations of the bank and its clients.

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he revised Code of Banking Practice came into effect from 1 January 2012 and will be a guide for you when you transact with your bank and it will help you better understand your rights and responsibilities as well as your bank’s responsibilities in serving you.

The Code also provides

>>> THE CODE HAS BEEN DEVELOPED TO:

the platform within which the Ombudsman for Banking Services adjudicates disputes between banks and their customers. It supplements the regulatory and contractual requirements that govern relationships between banks and these customers, committing the banks to do that little bit more in providing good service.

1. Promote good banking practices by setting minimum standards for your bank when dealing with you.

2. Increase transparency so that you can have a better understanding of what you can reasonably expect of the products and services.

3. Promote a fair and open relationship between you and your bank.

4. Foster confidence in the banking system.

>>> THE BANK’S RESPONSIBILITIES IN TERMS OF THE CODE As a customer or potential customer you can expect the following reasonable conduct from your bank. Your bank will: 1. Act fairly, reasonably and ethically towards you.

2. Provide you with effective and adequate disclosure of information, including the Terms and Conditions of products and services.

3. Provide you with information in a plain and understandable language format.

4. Ensure that its staff members attend to your transactions and enquiries promptly.

5. Provide you with at least 20 business days (or 5 business days in the case of credit agreements) notice before the implementation of changes in the Terms and Conditions, fees and charges, the discontinuation of products and / or services and the relocation of premises.

6. Acknowledge a formal complaint within 3 business days and attend to the investigation thereof within a reasonable time.

7. Provide affordable and accessible basic banking services to all South Africans.

8. Take reasonable measures to attend to the physical needs of persons with disabilities.

9. Treat your information as private and confidential.

10. Not unfairly discriminate against you on the grounds of marital status, gender, age or race in providing you with banking services.

11. Make sure that all marketing and promotional material sent to you for advertising purposes are clear, fair, reasonable and not

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THE MO RTGAGE & C ONSUMER CREDI T MAG AZ I NE JULY/AUG U ST 2013

misleading.

12. Not use your information for marketing and promotional purposes when you have opted out of receiving marketing communication.

13. Provide you with information on relevant fees and charges for the services and products that you have chosen or are enquiring about.

14. When you become a customer, or upon enquiry, give you information about the interest rates which apply to your account/s in compliance with applicable legislation.

15. Before, or at the time that you open an account, advise you on the rights and obligations relating to that account.

16. Not close your account without reasonable prior notice given to you at your last contact details.

17. Provide you or make available on request, regular statements of account to enable you to manage your account and verify entries on such account.

18. After you have informed the bank about the loss or theft of a cheque book, savings account book, card or electronic purse take immediate steps to prevent these from being used to access or misuse your account.

19. Enable you to reliably stop debit orders.

20. Provide you with the details of the Ombudsman for Banking Services if you are not satisfied with the resolution of a dispute, or with the outcome of a dispute handling process.

>>> BORROWER EDUCATION: YOU AND YOUR BANK

relationship

with your bank

>>> YOUR RESPONSIBILITIES IN TERMS OF THE CODE The Code includes a number of responsibilities that your bank expects you to fulfill in your relationship with them. These responsibilities include; 1. It is your responsibility to disclose all relevant information as part of any credit application to the bank so that they may make an informed decision to grant credit to you.

2. You are responsible to ensure that you do not extend yourself beyond your financial means.

3. Where credit is granted to you it is your responsibility to ensure that sufficient credit insurance cover is in place to protect you and /or your family in the case of losing your regular income (e.g. loss of employment, disability, or death).

4. All products and services offered by the bank are governed by a set of general and specific Terms and Conditions. Although they will take all reasonable steps to advise and inform you of these Terms and Conditions, it is your responsibility to read and understand the Terms and Conditions.

5. Before they are allowed by law to establish a relationship with you, or from time to time during the existence of such a relationship, they are required to perform certain identification and verification steps about you. It is your responsibility to assist them in performing these legal obligations to ensure that our relationship can lawfully be established or continue.

6. In the event that you wish to switch your account to a new bank they will assist you in this process. However, you are responsible to provide the new bank with all the relevant information to assist you in switching your account transactions.

You are, however, ultimately responsible for ensuring that your account details are changed with each third party service provider or the party that makes a payment to your account.

7. It is your responsibility to inform them of any change in your contact details or in your financial affairs as and when this occurs.

8. You are responsible to check and verify all the entries included in statements for correctness, and to inform them immediately in the event that you do not agree with any entry or item that reflects on such statements.

9. Protecting your card and PIN is a crucial security measure for

which you are responsible. You should never disclose your PIN, or other unique means of personal identification to anyone, including an employee of the bank.

10. To enable them to take the necessary measures to prevent or limit fraud or theft on your account it is your responsibility to inform them as soon as possible when you discover any unauthorized activities on your account.

11. When making use of their ATM services, you should take note of any cautionary notices that may be placed at ATMs for your protection, and exercise due caution accordingly.

12. It is important to familiarize yourself with the circumstances under which you may be responsible for any losses suffered by you as a result of fraud, theft, or where you acted without reasonable care.

13. The purchase of immovable property carries a great deal of responsibility. You should take independent qualified advice on the structural or other condition of the property before concluding such a purchase.

14. When considering buying a motor vehicle you should ensure that you deal with a reputable dealer or individual.

15. Binding yourself as a surety for another person’s debt is a risky decision. You must keep in mind that you are effectively undertaking to take on the responsibilities of that other person in the event that he/she/it does not honour his/her/ its responsibilities in accordance with the terms and conditions agreed to between that person and the bank. You should take independent legal advice before agreeing to be a surety or guarantor.

16. In the event that you run into difficulty in meeting your financial obligations toward the bank it is your responsibility to advise the bank of this as soon as possible.

17. When making use of internet, telephone or cell phone banking channels you should take reasonable steps to prevent fraud, theft or the unauthorized use of your account or personal information.

The Banking Association South Africa Telephone number: (011) 645 6700 Fax: (011) 645 6800 Website: www.banking.org.za Email: webmaster@banking.org.za

T H E M ORT GA GE & CON SU M E R CR E D I T M A GA ZI N E J U LY / A U GU ST 2 0 1 3

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>>> BORROW ER EDUCATION: CONSUMER RIGHTS

Your guide to consumer rights As a consumer you have rights. Understand them. Enforce them.

What is the Consumer Protection Act?

What are Consumer Rights?

The Consumer Protection Act, No. 68 of 2008 was signed on 24 April 2009. It aims to: • Promote a fair, accessible and sustainable marketplace for consumer products and services; • Establish national norms and standards to ensure consumer protection; • Make provision for improved standards of consumer information, to prohibit certain unfair marketing and business practices; • Promote responsible consumer behaviour; • Promote a consistent legislative and enforcement framework, related to consumer transactions and agreements; • Establish the National Consumer Commission

The Bill of Rights enshrines the rights of all South Africans – including consumer rights.The Consumer Protection Act further outlines these key consumer rights, of which all South African consumers should be aware.

Who may lodge consumer complaints: • An individual; • An authorised person acting on behalf of another; • A person acting as a member or in the interest of an affected group or class; or • A person acting in the public interest (amicus curiae/leave of tribunal or court association,acting on the interests of its members).

The Consumer Protection Act applies to the following: • Every transaction occurring within the Republic of South Africa; • Promotion or supply of any goods and services occurring within the Republic; and • Goods or services that are supplied or performed, in the Republic, in terms of transactions mentioned in the Act.

Who is a ‘Consumer?’

Consumers are persons to whom goods or services are marketed, who have entered into transactions with suppliers, users of particular goods or recipients/beneficiaries of services.

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These include the following: Right to Equality in the Consumer Market and Protection Against Discriminatory Marketing Practices ∙ Your right to free and unlimited access to goods and services ∙ Your right to high-quality goods and services ∙ Your right to fair pricing of goods and services ∙ Your right to lodge complaints

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Right to Privacy ∙ Your right to restrict unwanted direct marketing ∙ Your right to discontinue receipt of direct marketing at any time Right to Choose ∙ Your right to select the supplier of your choice ∙ Your right to cancel or renew a fixed-term agreement ∙ Your right to request pre-authorisation for repairs or maintenance services ∙ Your right to cancel direct marketing contracts within the cooling-off period ∙ Your right to cancel advance reservations, bookings or orders ∙ Your right to choose or examine goods, even after purchase and delivery ∙ Your right to return goods and seek redress for unsatisfactory services ∙ Your right to retain and not pay for unsolicited goods or services

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Right to Disclosure of Information ∙ Your right to information in plain and understandable language ∙ Your right to disclosure of prices of goods and services ∙ Your right to product labelling and trade description ∙ Your right to clear disclosure of reconditioned or grey market goods ∙ Your right to sales records

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>>> BORROWER EDUCATION: CONSUMER RIGHTS

how to protect them

∙ Your right to disclosure by intermediaries ∙ Your right to identification of deliverers, installers and others

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Right to Fair and Responsible Marketing ∙ Your right to protection against bait marketing ∙ Your right to protection against negative option marketing ∙ Your right to protection against direct marketing ∙ Your right to protection in catalogue marketing ∙ Your right to protection in terms of trade coupons and similar promotions ∙ Your right to protection in customer loyalty programmes

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Right to Fair and Honest Dealing ∙ Your right to protection against unconscionable conduct ∙ Your right to protection against false, misleading or deceptive representations ∙ Your right to protection against fraudulent schemes and offers ∙ Your right to protection against pyramid and related schemes ∙ Your right to assume that suppliers are entitled to sell goods ∙ Procedure for sales by auction ∙ Your right to changes, deferrals and waivers, and substitution of goods ∙ Your right to protection against over-selling and over-booking

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Right to Fair, Just and Reasonable Terms and Conditions ∙ Your right to protection against unfair, unreasonable or unjust contract terms ∙ Your right to obtain notice for certain terms and conditions ∙ Your right to obtain free copies of agreements/contracts ∙ Your right to refuse prohibited transactions, agreements, and terms or conditions ∙ Your right to approach the Court to ensure fair and just conduct, terms and conditions

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Right to Fair Value, Good Quality and Safety ∙ Your right to demand quality service ∙ Your right to safe, good quality goods ∙ Your right to implied warranty of quality ∙ Your right to a warranty on repaired goods

∙ Your right to receive warnings on the fact and nature of risks ∙ Your right to recovery and safe disposal of designated products or Components ∙ Your right to have products monitored for safety and/or recalled ∙ Your right to claim damages for injuries caused by unsafe/defective goods

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Right to Accountability by Suppliers ∙ Your right to protection in lay-bye agreements ∙ Your right to protection with regard to prepaid certificates, credits and vouchers, and access to prepaid services and service facilities

Where to complain The Consumer Protection Act aims to promote consumer activism, by making provision for the accreditation of consumer groups tasked with lodging complaints on behalf of consumers, as well as making available support for activities, such as consumer advice, education, publications, research and alternative dispute resolution through mediation or conciliation.As such, the Act gives rise to the establishment of the National Consumer Commission, a body assigned to investigate consumer complaints, as well as the National Consumer Tribunal, the latter of which was created by the National Credit Act in September 2006, and is responsible for the adjudication of violations and transgressions of the National Credit Act and the Consumer Protection Act.

Consumer Help Line, via the dti Customer Contact Centre: 0861 843 384 the dti Office of Consumer Protection (OCP) : (012) 394 1436 / 1558 /1076 the dti E-mail: contactus@thedti.gov.za the dti Website: www.thedti.gov.za National Consumer Tribunal (NCT): (012) 663 5615 NCT E-mail: Registry@thenct.org.za NCT Website: www.thenct.org.za

>>> BORROW ER EDUCATION: your credit health

Monitoring, managing and fixing your credit rating Credit and bad debt is a big topic in South Africa today. Economic times are tough and credit is harder to get.

Learn how to understand, monitor and control your debt and get a good credit record.

fraudulently obtain credit in your name. In fact, it is your right to know what information is on your credit report.

On your request, a credit bureau must provide you with a free annual copy of your credit profile, provided that they have been able to confirm your identity. A credit bureau will be able to provide you with advice and a clear explanation of the information on your credit report. It is also your right to address any incorrect information with a credit bureau.

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you are coping. Lenders use it when they decide what kind of deal to offer you – or whether to turn you down.

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What is a credit report?

A credit report provides a snapshot of credit accounts, your repayment record and how well

What is an impaired credit record?

An impaired credit record is a record on which any of the accounts are either classified as three or more payments in arrears, or which has an “adverse listing”, or that reflects a judgment or administration order.

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What is a credit score?

A credit score is a summary of a number of positive and negative factors, such as the information on your credit C M CM MY CY CMY K report thatY aims to predict how

likely you are to honour your credit commitments in future.

This rating is often used by credit grantors to identify the risk in offering you credit. A credit score can be regarded as a credit risk rating and gives lenders an indication of how well or fast you are able to pay your debt. The higher the number the better the score.

Creditors see the number as an indicator of how likely you are to repay a loan. Typically, scores are determined by reviewing the following data: • Your payment history • Current level of debt • Types of credit accounts used • Length of credit history • Number of new credit inquiries over a period of time

Do not borrow money you do not need Starting the year with no money means you are living beyond your means.

Remember, loans are paid off with interest over a set period.

Rather downgrade your lifestyle until you are back on your feet.

Live within means andand startstart 2013 2012 with no financial worries. worries.

Live withinyour your means with no financial

Indingliz / ncr 002

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credit bureau is a vital tool to ensure you enjoy access to credit, allowing you to make that new car a reality or providing access to a clothing or furniture account. It is therefore important to understand the role of the credit bureau and to ensure that you are empowered to understand, manage and protect your personal credit information.

As a consumer, it is important that you keep in touch with your credit report. Keeping in touch with your credit report will not only give you peace of mind when you apply for credit, but it will also protect RTAGE 12/5/11 PM fraudsters Page 2 who may you2:33 against try to use your ID number to

>>> BORROWER EDUCATION: yOUR CREDIT hEAlTh

No. There is no single credit score. Credit grantors may choose to use a standard credit bureau score, in their decision making process, or they may choose to build their own credit score. Credit grantors will take different factors into consideration when building a credit score, based on the company’s specific credit granting policies. These scores differ between credit grantors and may even differ between the type of credit you apply for e.g. home loan, credit card etc. Often credit grantors will make use of credit bureau data, their own internal data and affordability data, such as the ratio of installment to income, to build a company specific credit score.

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Why does my credit score change?

Your credit score is dynamic; it can change monthly as new information for the accounts you hold is loaded to your profile. Similarly, if a new account is loaded to your credit profile your credit score may change.

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Can I get a free credit report?

Compuscan provides you with a free copy of your credit report once a year. You can apply for your credit report by RTAGE 12/5/11 2:33 PM the Page 2 completing online form at www.compuscan.co.za

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Blacklisted – what can I do?

Firstly, it is important to note that the credit bureau does not hold a “blacklist”. Credit bureaus act as a ‘library’ of consumer credit information, collecting and distributing credit related information. They provide information about your credit history and do not offer opinions about whether you are likely to repay credit. Lenders make their own decisions using all the information they have available to them. The information stored by credit bureaus is a combination of both positive and negative information.

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>>> HOW TO MAINTAIN A HEALTHY CREDIT REPORT

• Always pay your accounts on time every month. If you cannot pay this month, be sure to pay next. If you fall 3 or more months into arrears, this can have a negative effect on your credit report.

• Pay the full instalment amount that is owed each month.

• If you are unable to make a payment due to unforeseen circumstances, talk to the company concerned and make alternative arrangements to pay back what you owe.

• Budget - never buy on credit without knowing if you can afford the repayments.

• Try to keep credit repayments between 20% and 30% of your income. If you have R5 000 income per month, keep all of your credit repayments to within R1 000 and R1 500 per month.

• Keep up to date with your personal credit information - obtain a copy of your credit report at least once a year.

• Never lie on an application form for credit.

There is incorrect information on my credit report what can I do?

If you believe that the information on your credit report is incorrect, you should do the following: • Contact the credit bureau and inform them that you wish to register a dispute.

• Should the information prove to be incorrect or unsubstantiated it will be removed immediately.

• The credit bureau will notify both you and all relevant credit providers of the correction.

Should you have any questions regarding your personal credit profile, please do not hesitate to contact Compuscan on 0861 51 41 31 or e-mail: info@compuscan.co.za you can also visit the website www.compuscan.co.za for more information.

• Never ignore a letter of demand for payment. Make a phone call or write a letter to explain your situation.

• Never ignore a summons to court for non-payment. This could become a very serious reflection on your credit profile.

>>> DID YOU KNOW? • As at the end of December 2011, credit bureaus had records for 19.34 million credit- active consumers, of which 53.8% (10.41 million) were classified as in good standing. Consumers with impaired records totalled 46.2% (8.93 million).

• A total of 285.95 million enquiries were made on consumer records.

• The number of credit reports issued to consumers was 103,403. Of the total credit reports issued, 81.8% (84,561) were issued without charge.

• There were 8,826 disputes lodged on information held on consumer credit records for the quarter ended December 2011, which was an increase of 24.8% quarter-on-quarter and a decrease of 40.5% year-on-year.

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Do not borrow money you do not need Starting the year with no money means you are living beyond your means.

Remember, loans are paid off with interest over a set period.

Rather downgrade your lifestyle until you are back on your feet.

Live within means andand startstart 2013 2012 with no financial worries. worries.

Live withinyour your means with no financial

Indingliz / ncr 002

4

Are all credit scores the same?

>>> BORROW ER EDUCATION: BORROWING CHOICES

How to choose your

home loan

For most people, their home loans are by far their largest debts. It is important to know what facilities, options and advantages can be obtained prior to applying for a loan. We set out all you need to know in order for you to be fully informed before you file your application.

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Loan consultants You can approach any branch of a lender of your choice to apply for a home loan. It will refer you to a loan consultant who will process your application. This has the advantage of giving you direct access to the bank for information at any time.

Online applications Bond applications can be submitted over the Internet merely by logging on to the home loans section of any lender’s website. This is a swift and efficient method of applying for a loan, but lacks the personal touch you may need later.

Mortgage originators They act as multi-bank sourcers and can submit your application to different banks to get the best deal.

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Prequalifying Not many people make use of this facility. It is useful, however, before you go property hunting, to know how much a bank will be willing to lend you. Approach a lender and it will appoint a representative to assess your credit-worthiness.

Transfer and bond costs For most first-time buyers, and even in other appropriate cases, most lenders will allow you to add all transfer and bond costs to your loan amount. With some lenders, this is a separate facility and the costs must be repaid within six months.

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This is usually the same as the lender’s prime rate which is determined by the Reserve Bank’s increases or decreases to the lower repo rate from time to time.

Fixed rate All lenders allow customers to choose a fixed rate for anything between one to five years. This is usually slightly higher or lower than the current variable rate (depending on whether the rate trend is up or down) and affords repayment stability.

Rate discounts Lenders are willing to negotiate their prime mortgage rate with customers and will allow discounts, depending on various circumstances. You may need to bargain with your lender to get the maximum discount you deserve.

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Conveyancer’s fees Your lender will appoint a conveyancing firm of its own choice to register your bond. These charges fluctuate according to the amount of each loan, but you can obtain an estimate from any bank or estate agency, which will include a sundry fee.

Deeds office fee The conveyancer’s account will also include the Deeds Office’s registration fee (which the conveyancer will have to pay over) and which will be a few hundred rands depending on the amount of the loan. VAT is also payable on all the conveyancer’s fees.

Bank charges All lenders charge valuation and inspection fees (up to about R2 750 depending on the loan amount). These usually have to be paid to the conveyancer although, in some cases, the lender will allow you to add them to your capital loan amount.

Homeowners’ insurance All lenders expect you to take out a short-term policy renewable annually with their or your own insurance company. This protects your buildings and the property against unavoidable damage.

The premium will be debited to your account.

Bank life policies Most lenders offer life policies but these are usually level-term policies and only cover the bond during its lifetime. You are not compelled to take one and a few lenders no longer require their home loan clients to take life policies at all.

Independent policies It is in your own best interests to have a life policy from your own insurer, in any event, to cover the outstanding debt should you pass away while the bond is still in force. This policy at least has a redemption value after the bond has been paid off.

Package deals If you place your home loan with a particular lender, it will also offer you various advantages provided you also take out a credit card and cheque account. Reduced bank charges are the major advantage but other bonuses are also offered to customers.

All-in-one accounts Common in Australia, these are only now being phased into South African banking systems. They combine your home loan and cheque accounts, allowing you the benefit of interest reductions while the cheque account holds any credit amount.

Securitised loans Other companies offer securitised home loans. These are backed by major investments made available for home loans at reduced rates.

Debit orders Lenders usually insist on all monthly instalments being paid through a debit order. It simplifies the monthly payments, making it unnecessary for you to attend to them, but it does also give the bank access to your account to increase payments directly.

Early repayment Many lenders have penalty clauses against repayment of a loan within three years. Check your loan agreement carefully. You may also have to pay extra interest on your loan or be required to give three month’s notice prior to the intended cancellation.

Additional payments You are usually entitled, at any time however, to make extra capital payments on the loan to reduce the outstanding debt. No penalties will be due provided the whole loan is not repaid in full within three years of its inception.

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>>> Property valuations

SA property

valuation apathy Contrary to past experience hardly anyone objected to the new municipal property valuations that came into effect in July2013. What has been the cause of the apathy among homeowners this time round?

O

nce every four years municipalities throughout South Africa do revaluations of all the properties within their jurisdiction. A number of factors determine what the new valuations will be and, once these have been determined, local property owners are given notice of the proposed new valuation and are advised that they may lodge an objection to it. A prescribed form has to be completed and the objector has to justify his complaint by providing telling arguments supporting his contention that his property has been overvalued. The required documentation has to be lodged within a prescribed period. The

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four-year cycle came around recently and revaluations of properties were dutifully done throughout South Africa.

Contrary to past experience, however, hardly anyone objected to the new valuations. What has been the cause of the apathy this time around?

What motivates homeowners to object?

When voter-turnout at elections is poor, the media talks about voter apathy. The reasons for the apathy are invariably the same as always – voters don’t have confidence in any of the parties representing them, they’re tired of false promises, and they don’t believe anything is really going

the mo rtgage & c onsumer credi t mag az i ne July/Aug u st 2013

to change in their favour no matter who wins the election.

Does the same apply to home revaluations? Do homeowners no longer believe it is worth protesting – the municipalities will go ahead and do what they want no matter how much you protest? Perhaps Eskom’s example has demotivated and discouraged homeowners to the extent that they feel no one will look after their interests and that the central Government won’t intervene to prevent corruption, gross inefficiency, nepotism and self-enrichment in local councils.

Middle-class South Africans know that, courtesy of media information at the time, Eskom’s predicaments came

from its failure to extend its power supply by building new power stations as it was warned to do after the 1994 elections.

Instead evidence surfaced that its new managers had been indulging themselves and looking after their personal interests for years while doing very little to maintain their facilities and extend them. The disclosures were hardly a shock – this sort of debilitating news was filtering into the media about numerous state sectors and government agencies all the time. Even when Eskom’s CEO, Jacob Maroga, was dismissed, he had the boldness to threaten a R85 million suit for unfair dismissal. Middle-class citizens began to despair.

>>> City of Johannesburg – a typical example In a very informative article published in April 2013 in The Citizen, Kentse Radebe of Moneyweb gave a series of facts and figures about the City of Johannesburg’s proposed rate increases and the reaction of Jo’burg homeowners. By the end of April only seven thousand owners had lodged objections to the proposed new valuations of their properties. She pointed out that the objectors represented less than 1% of the city’s homeowners. In past decades objecting to revaluations was almost a pastime – affluent citizens lodged objections as a matter of course. Observers often commented that they wouldn’t accept offers for their homes anywhere near the new municipal values but would still vociferously object that they were inflated.

The City Council even gave local residents a further 43 days to lodge their objections beyond the initial deadline and

The real reason for the apparent apathy among homeowners and the limited reaction to the new valuation rolls is probably the depressed state of the property market over the past five years.

still the anticipated avalanche failed to materialise. The City, in addition to increasing property valuations, proposed a 5.3% increase in residential and business rates for the coming year. The increase a year earlier had been 6%. Both figures were just above the annual inflation percentages at the time, but the increased valuations would ensure that each homeowner would probably pay rate increases of at least 10% more than the previous year.

Are homeowners resigned to inevitable increases?

After the deadline nationwide for objections had passed it was still obvious that very few homeowners were going to the

Property valuations

Do homeowners no longer believe it is worth protesting believing municipalities will go ahead and do what they want no matter how much homeowners protest. have changed and that their voices are not going to be heard. A resigned attitude that “they’ll do what they want to anyway” may have set in, fuelling the general apathy and indifference. Toyi-toying is best left to those whose protests will ring with the party that needs their votes. The lack of

tolling of city freeways has been vociferous and relentless. Outa has done all it can, spurred on by unlikely bedfellows like Cosatu, to sustain its opposition to the new tolls. The latter has even threatened to demolish Sanral’s gantries.

The real reason for the apparent apathy among

The real reason for the apathy is the depressed state of the property market. trouble of protesting against their increased valuations.

Local councils usually advise ratepayers of the evidence they have to produce to motivate a valid objection. A comparative study of recent prices in their areas of comparable homes is usually the defining criterion of a new valuation. Owners are encouraged to compare these with the new valuations of their homes and to show why the increased value is unjustified.

Another supporting motivation is a comparison of house price increases generally over the past four years in house price analyses provided by banks like ABSA and First National Bank.

Despite the access homeowners have these days to the facts and figures they need to strengthen their objections to new valuations, few of them bothered to lodge the required documentation. It has been suggested, pursuant to the Eskom and other similar crises of recent years, that white homeowners in particular are resigned to the fact that things

service delivery, though a source of increasing frustration and irritation, may nevertheless have been accepted on the basis of an adapt-or-die attitude.

Could the increased valuations possibly be reasonable?

There could, however, be other reasons for the apparently complacent reaction of homeowners to their new valuations. The most improbable is that they have actually accepted that the increases are justified and realistic. One says improbable because history has shown that homeowners traditionally belie that municipal values should, as a matter of course, be some way below the actual market values of their properties. Howls of protest have greeted revaluations in the past even when owners have known that the resale values of their properties are actually much higher.Yet, although the reaction to new valuations has been muted, nationwide reaction to Sanral’s proposed

homeowners and the limited reaction to the new valuation rolls is probably the depressed state of the property market over the past five years. Inflation has generally been kept around 5% annually, a generally low figure in comparison with inflation increases in recent decades, and the inability of the property market to energise itself has led to a kind of stability in market prices generally. To put it simply, homeowners know what their properties are really worth and have accepted the increases as consistent with general inflation and increasing house price trends. The public is, as a rule, better informed than ever as to the graphics of house price increases and most homeowners know the real value of their homes. Nothing has happened for years to disturb the generally conservative trends in the market and homeowners have, perhaps, just accepted that the recent increases, like everything else, are not really worth getting excited about. m

t h e m ort ga ge & con su m e r cr e d i t m a ga zi n e J u ly / A u gu st 2 0 1 3

27

1

Straight after the signing,the estate agent will forward a copy of the agreement to the transferring conveyancer and instruct him to proceed. The purchaser’s bond application will be submitted for approval at the same time.

HOMEBUYING PROCESS The procedure for registering a property transfer or bond after a sale agreement has been completed follows a fairly straightforward path. Many transfers are complicated, however, by additional requirements or obstacles (such as attachments and deceased estate formalities) which are not included here.

This outline only covers the average, normal transfer which will usually be registered within two months after the sale agreement has been signed by both the buyer as well as the seller.

The guarantees required to cover any outstanding bonds on the property will be issued by the bond attorneys and forwarded on to the attorney instructed by the lender to cancel each bond. A fee is payable to the attorney for this service.

7

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Once the conveyancer and the other attorneys have all their required documentation, they will lodge these in the local deeds office where they will be examined for any errors. These will have to be corrected before registration takes place.

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9

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After about ten days, the Within a day or two documents will be put forward for after registration, the execution (unless they have been conveyancer will prepare rejected for any reason). The his final accounts and will lenders will be advised and the pay the nett proceeds of the transfer will be finalised when sale to the seller. At the same each party is ready to time, he will pay the agent’s register its matter. commission and any refund due to the buyer.

• Be the first to read each issue of The Mortgage & Consumer Credit Magazine with the new digital edition on our website ● Digital edition comprises the complete print magazine – nothing taken away ● Free access to The Mortgage & Consumer Credit Magazine archives for a limited period View it now at www.mccm.co.za

The conveyancer will write to any bank holding a bond over the property for the title deed and its cancellation requirements.

He will also apply for rates clearance particulars from the local authority.

3

2

If a deposit has been paid, the conveyancer will invest it at a local bank to earn interest for the purchaser up to the date of transfer. He will also write to both parties introducing his staff and himself and will request FICA documents.

4

5

On receipt of the title deed, the conveyancer will draw his transfer documents and request meetings for both seller and purchaser to sign.

This is the best time for either party to ask questions they may have about the transaction.

The attorney attending to the bond registration will, once he has received all his required information from the conveyancer, draw his bond documents for the purchaser to sign. Often the same attorney attends to both matters.

6

Once his fees have been paid (or bridging finance has been secured), the conveyancer will pay the transfer duty due, as well as the amount required to obtain a rates clearance certificate, usually valid for six months.

11

The conveyancer will also apply for a refund of any rates overpaid from the local authority and, on receipt, will pay it over to the seller. When the new title deed is returned, he will deliver it to the lender holding the new bond over the property.

DIGITAL EDITION READ SOUTH AFRICA’S ONLY INDEPENDENT HOME LOAN MANAGEMENT MAGAZINE BEFORE ANYONE ELSE.

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>>> BORROWER EDUCATION: lOCAl pROpERTy pRICES

National and provincial

average house prices

SOUTH AFRICA Average Nominal House Prices

(3nd Quarter 2012)

Average Nominal price

Nom. y/y% Change

677 772

-9.9

Small (80-140m , ≤ R3,6mil) 2

994 098

+1.1

large (221-400m , ≤ R3,6mil)

1 476 542

+0.1

New (80-400m , ≤ R3,6mil)

1 534 585

+4.5

NORTH WEST

Existing (80-400m , ≤ R3,6mil)

1 006 547

-3.2

Small

National (80-400m

1 027 073

-2.8

Medium (141-220m , ≤ R3,6mil) 2

2

2

2

2,

≤ R3,6mil)

4940 846

(›R3,6 mil - R13,4 mil)

Small

627 708

-11.6

Medium

635 306

-9.2

1 042 009

-4.3

791 293

-11.5

All

NORTHERN CAPE 630 604

-4.2

Medium

836 705

+29.6

1 121 302

+11.9

834 866

+17.7

All

WESTERN CAPE Small Medium

All

0.0

Nom. y/y% Change

LIMPOPO PROVINCE Small

837 230

+12.7

Medium

1 242 774

+14.2

large

879 539

+6.2

All

552 151

-4.0 -9.9

847 320

-5.4

Nom. y/y% Change

Small

639 365

-17.8

Medium

981 533

+0.7

large

1 538 331

-0.2

All

1 060 914

-5.1

Nom. y/y% Change

Small

627 815

-3.5

Medium

913 939

+6.4

1 284 700

+4.0

890 135

-2.7

large All

Nom. y/y% Change

-16.8

837 696

MPUMALANGA

EASTERN CAPE

Nom. y/y% Change

1 250 846

GAUTENG

Nom. y/y% Change

Small

large

+3.0

542 295

Nom. y/y% Change

FREE STATE

large

Medium large

LUXURY

Nom. y/y% Change

KWAZULU NATAL

Nom. y/y% Change

828 741

-2.7

Small

606 067

-5.7

Small

550 143

-17.8

1 204 975

+4.0

Medium

883 627

+1.1

Medium

884 965

-4.3

1 384 636

+7.7

large

876 854

-2.9

All

large

1 729 900

+3.8

large

All

1 175 330

+2.1

All

1 321 996

-12.2

865 946

-11.3

>>> BORROWER EDUCATION: local property PRICES

A closer look

at South Africa’s

residential statistics Month-on-month declining

Property values

October 2012 saw the yearon-year growth in the average value of homes in the middle segment of the South African housing market improving further compared to September this year. Monthon-month price growth, however, is still on a steady declining trend, pointing to eventual subdued year-on-year price growth.

These trends are according to the Absa house price indices, which are based on applications for mortgage finance received and approved by the bank in respect of small, medium-sized and large homes in the middle segment of the market.

The average value of middlesegment homes increased by a nominal 2,6% year-on-year (y/y) in October this year, after rising by a revised 1,5% y/y in September.

The first ten months of the year saw house prices marginally down by 0,6% y/y, after significant price deflation evident in the small segment of the market for most of the year.

Real house price deflation continued up to September, with the momentum slowing down somewhat from August on the back of improved nominal price growth, but faster rising inflation.

The headline consumer price inflation rate accelerated to 5,5% y/y in September on the back

of upward pressure coming from food prices and transport costs.

Consumer price inflation averaged 5,7% in the first nine months of 2012 compared with the same period last year.

The average nominal value of homes in each of the three middle segment categories of the housing market was as follows in October 2012: • Small homes (80m²-140m²): R749 800 • Medium-sized homes (141m²220 m²): R1 042 900 • Large homes (221m²-400m²): R1 526 200 House price growth showed some improvement in recent months, based on the Absa house price indices. In the small segment of

the market, price deflation was evident for almost two years, with year-on-year price growth back in positive territory in September and October this year.This development in the small category came on the back of base effects, with prices on a declining trend a year ago.

Real house price decline expected into 2013 The forecast is still for relatively low nominal house price growth towards the end of 2012 and for most of 2013. Real house price deflation is expected to continue into next year, based on the outlook for nominal price growth and headline consumer price inflation over this period. m

>>> SMART LANDLORDS

Renting

securely Landlords keen to accept guaranteed rental income should tenants default.

R

esearch into the behavioural patterns of buy-to-let investors and potential tenants has revealed that both parties were contributing towards stabilising the rental market as a medium to long-term investment prospect. Data collated by property services group Just Letting Property reflected a 26% increase in the number of buy-to-let investors nationally contracting to receive guaranteed rental income should tenants

with the Rental Housing Tribunal or seeking attorneys’ assistance,” Roberts says.

He says these elements required an investment in time and money with legal fees paid upfront to be potentially recovered from the tenant together with the rental arrears and accrued interest sometime in the future.

Meanwhile, tenants were effectively squatting in their property. The group’s recently launched RentSecure product guarantees buy-to-let investors

Credit Act (NCA) and thus qualifying for rental properties.

While the adage that location was not only the most important element of property, but also the second and thirdmost important elements, the essence of a buy-to-let investment was a good tenant.

Roberts says securing that top-notch tenant - someone who had the credit references to sign the lease, paid their rent on time and then looked after that property as if it was their own - was the nugget landlords

The essence of a buy-to-let investment was a good tenant. default on their monthly commitments.

Just Letting Property CEO John Roberts says this indicated the impact of the recession in that investors had been bitten by non-payments or struggled with tenants refusing to move out of their rented properties, secure in the knowledge that legal costs involved in removing them were onerous.

“South African landlords cannot evict a tenant personally, but only seek a court order to evict them if that person has breached the contract.

The landlord is then forced to take steps to strongly urge the tenant to rectify their breach, following which comes legal action - lodging a complaint

32

their full monthly rental despite tenants defaulting on rental payments; only paying a portion of their amount due; defaulting and refusing to move out, thus initiating eviction and continuing to live in the property during the eviction process. RentSecure covers rental and legal fees up to a maximum of R100 000 per lease, during period of lease and tenant occupancy.

However, Roberts says conversely the number of tenants declined for Rentsecure during the credit checking process had more than halved, reflecting the extent to which people were putting their finances in order in line with the requirements of the National

THE MO RTGAGE & C ONSUMER CREDI T MAG AZ I NE JULY/AUG U ST 2013

sought in building their wealth from that asset.

He says anyone seeking to boost their credit rating should consider their personal debt levels. The NCA takes into account all lines of credit

whether activated or not, meaning the maximum amount on store cards, credit card limits and overdraft facilities were taken into account when applying for a credit rating.

“If you have 10 store cards each with a R5000 limit, a R30000 credit card limit and a R200000 overdraft facility, the NCA deems you to have debt amounting to R280000 even if you have not activated any of these debt levels. Add that to the car repayments, student loans or other debt instruments and the opportunity to secure the desired rental disappears in a cloud of debt-laden ether,” he says.

Resolving that dilemma meant cancelling unnecessary store cards and reducing credit card and overdraft limits such that the potential debt levels falls within a manageable range. M

The NCA takes into account all lines of credit whether activated or not, meaning the maximum amount on store cards, credit card limits and overdraft facilities were taken into account when applying for a credit rating.

Applying for credit?

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>>> IT”S YOUR RESPOSIBILITY

Gasand fencing

certificates

It has become standard practice (though not law) for sellers to issue normal electrical compliance certificates; now you should extend this obligation to include gas and fencing installations.

I

t’s more than twenty years since property owners accepted the responsibility to be in possession of an electrical compliance certificate in terms of the Occupational Health and Safety Act. Sellers now, almost as a matter of course, accept the obligation to pass on to their buyers a proper Certificate of Compliance at their own expense. Recent amendments to the law provide that the new user must be in possession of a certificate not more than two years old. The law, however, has never burdened sellers with this responsibility and to this day it

34

provides only that, on change of ownership of a property, the user (that is, the buyer) shall be in possession of the required electrical certificate. If the sale contract says nothing about whose responsibility this will be, it will remain the buyer’s to obtain the required certificate of compliance.

In more recent times the Act has been amended to include gas appliances in addition to electrical systems. With loadshedding a constant threat and with Eskom constantly seeking price increases around 16% per annum (to compensate for the company’s failure to

the mo rtgage & c onsumer credi t mag az i ne July/aug u st 2013

extend its power stations to meet increased demand even after it was warned many years ago to develop its power supply immediately), many South African homeowners have elected to instal gas appliances instead, guaranteeing power at all times. These systems, however, carry similar risks to electrical appliances and new laws have been brought in to control gas appliances as well. The risk here is far greater than it is with a property’s electrical supply – gas appliances can explode and cause massive damage and loss of life when they do.

Regulation 17(3) to the

Healthy and Safety Act introduced in July 2009 is the legal prescription that covers gas appliances. Regulation 17(2) provides that ‘after installation or re-installation, and before commissioning a gas system, the user shall ensure than external inspection and a leak test are performed by an authorised person or approved inspection authority.’ The next regulation, the crucial one, only provides that an ‘authorised person or approved inspection authority shall issue a certificate of conformity after completion of a gas installation, modification or alteration or change of user

>>> or ownership.’ It says no more, making no reference to or provision for appliances and gas installations introduced to a property prior to 2009.

The effect of all this is that the only installations covered by the Act are new ones, or reinstallations, introduced since the promulgation of the amendments to the Act in 2009.

The law makes no provision for installations done prior to this date. Like normal electrical certificates, if the sale contract does not bind the seller to provide a valid gas certificate to the purchaser, the latter must assume the responsibility to acquire one at his own expense. Estate agents are, as a rule, not fully informed on these matters and most sales of properties with gas appliances are being concluded without any attention being paid to their gas installations. If these predate 2009 on any property sold, the seller will have no responsibility to the purchaser to provide the required certificate. The problem will be the purchaser’s alone.

The new laws serve a good purpose but more attention should have been given to obliging all sellers with gas or fencing systems on their properties to provide certificates of compliance to their potential buyers.

Installations since the inception of the amendments to the Act are heavily controlled by law. The amended regulations covering recent gas installations prescribe fixed standards affecting the design, use, production, repair, replacement and modification of any gas system on a residential or industrial property. These regulations came into effect on the 1st October 2009. The law requires the user of a property to arrange an internal inspection and leak test by an authorised person of a new installation before that system can be put to use. Contrary to many website and media advices in this respect, the law only obliges a new user of a property to

IT”S YOUR RESPOSIBILITY

Like normal electrical certificates, if the sale contract does not bind the seller to provide a valid gas certificate to the purchaser, the latter must assume the responsibility to acquire one at his own expense.

Older electric fence installations only need to conform to the required SABS standards in this respect. Many homeowners will have to upgrade their electrical fencing to comply with the Act as they can be held accountable for

responsibilities to include gas and fencing systems as well.

The law does not protect you if these existed prior to the new regulations coming into effect.You need to ensure that your sale contracts cover them adequately.

The law requires the user to arrange an internal inspection and leak test. acquire such a certificate and, if the sale contract does not bind the seller to comply with the law, the buyer will assume full responsibility to do so.

The Electrical Machinery Regulations, which are also part of the provisions of the Occupational Health and Safety Act of 1993, have recently been amended to include electric fences as well. It is standard practice these days for an owner of a newly-built home, or a seller of an existing home, to acquire a standard electrical certificate of compliance covering all the installations on the property. Regulation 12.4, which came into operation in October 2012, however, provides that any owner of a property with an electrically controlled fence around the property must have a separate electrical certificate in addition to the normal one to cover the electric fence as well. Once again, however, the law only applies this prescription to electric fences introduced since December 2012.

any fencing failing to meet these standards. They are not, however, obliged to obtain a valid certificate of compliance in this respect or hand one over to their buyers on the sale of their properties. Any failure, once again, to mention this requirement in a deed of sale will leave the buyer with the obligation to comply with the law himself.

All property purchasers need to be aware that there are no laws obliging sellers to furnish them with the required gas or electric fencing compliance certificates when the existing installations on the property were present before the amendments to the Act came into effect. Most agency contracts place the burden on sellers to furnish their buyers with normal electrical certificates at their own expense, but very few have gone on to incorporate electrical fences and gas appliances as well. If you are a property buyer, make sure your contract extends the seller’s

The new laws serve a good purpose but more attention should have been given to obliging all sellers with gas or fencing systems on their properties to provide certificates of compliance to their potential buyers. Not many estate agencies are fully aware of the extent of the legal provisions affecting these installations and it is in your interests as a buyer to ensure that you are fully protected here. It does not matter what the legal provisions are, you have the right to make the furnishing of the required certificates a specific term of your sale contract.

Ensure that your offer to purchase contains these provisions before your agent submits your offer to purchase to the seller. It has become standard practice (though not law) for sellers to issue normal electrical compliance certificates and there is no reason why you should not extend this obligation to include gas and fencing installations as well. m

t h e m ort ga ge & con su m e r cr e d i t m a ga zi n e J u ly / A u gu st 2 0 1 3

35

>>> BORROW ER EDUCATION: PROPERTY CYCLES

Understanding the

property cycle ‘clock’ P

roperty prices follow a cyclical path anywhere in the world.

The effect of ongoing cycles on the residential property market is that prices will generally be at a peak when interest rates are at their lowest and prices at their lowest when interest rates are at their highest. This and other factors in turn affect the demand for and supply of residential property.

The ‘Property Cycle Clock’ graphically illustrates the various stages that take place through this continuous cycle. Be aware that the ‘clock’ does not move at a regular pace and many factors impact and turn the ‘clock.’ The ‘clock’ can also have a different ‘time’ in different parts of

the country. Local conditions could affect the ‘local time ‘of the cycle dramatically.

Outside the economic factors that affect the property cycle, your personal circumstances will have an impact on your property decisions as well.

The objective of the ‘Property Cycle Clock’ is to provide information that will assist you to define the economic environment prevailing at the time you wish to make a property related decision.

Of course, we have simplified aspects of the cycle, but hope to have provided the ‘fundamental’ elements to allow you to place into context the economic data we receive daily on the residential property market’s ‘health.’

12

TOP OF MARKET

BOOM

9

RECOVERY

SLUMP

3

RECESSION BOTTOM OF MARKET

6

Monthly house price tracking since 1966 with overheating in 2010 R1,200,000.00 Market overheats, Jan–July 2010

R1,000,000.00 R800,000.00 R600,000.00 R400,000.00

ABSA monthly House Prices since

R200,000.00

January 1966 All sizes ∙ Purchase Price ∙ Smoothed 01 Jan 1966 01 Dec 1966 01 Nov 1967 01 Oct 1968 01 Sept 1969 01 Aug 1970 01 July 1971 01 June 1972 01 May 1973 01 April 1974 01 March 1975 01 Feb 1976 01 Jan 1977 01 Dec 1977 01 Nov 1978 01 Oct 1979 01 Sept 1980 01 Aug 1981 01 July 1982 01 June 1983 01 May 1984 01 April 1985 01 March 1986 01 Feb 1987 01 Jan 1988 01 Nov 1989 01 Oct 1990 01 Sept 1991 01 Aug 1992 01 July 1993 01 June 1994 01 May 1995 01 April 1996 01 March 1997 01 Feb 1998 01 Jan 1999 01 Dec 1999 01 Nov 2000 01 Oct 2001 01 Sept 2002 01 Aug 2003 01 July 2004 01 June 2005 01 May 2006 01 April 2007 01 March 2008 01 Feb 2009 01 Jan 2010 01 Dec 2010

R0.00

IN DEBT? ? ..................................... ....................................

TRIKE LET US HELP YOU STRIKE A DEAL WITH YOUR BANK CALL US NOW:

>>> BORROWER EDUCATION: PROPERTY CYCLES

BOOM (12-3)

RECOVERY (9-12)

Who sells here?

Why do they sell?

Who sells here?

Why do they sell?

• Smart investors • Fortunate investors

• Off-loading now as boom peaks • Just ‘got lucky’- sold at right time

• Rental property owners • Individual investors

• Landlords now getting dividends • Think rising market has peaked

Who buys here?

Why do they buy?

Who buys here?

Why do they buy?

• Inexperienced investors • First-time buyers

• ‘Jumping on as band stops playing’ • Rates low and mortgages freely available • Monthly payments reach affordable levels

• Experienced investors • Owner occupiers • Tenants

• Aware that market is still rising • Increasing credit availability • See prices rising, interest rates declining

• 100% Loan buyers

What turns the Property Cycle Clock at this stage?

• • • •

High economic growth rate Sustained low interest rates Demand greater than supply Everyone ‘drives’ prices

• Very low inflation rate • Healthy foreign exchange rate • Increasing property prices

SLUMP (3-6)

What turns the Property Cycle Clock at this stage?

• • • • • •

Increasing demand Market stabilizes Renewed business confidence Interest rates reduce House prices deemed good Inflation decline

• • • • •

Rising construction of property Increasing disposable income Employment increases Personal debt/income ratio improves Property becomes a reasonable investment

RECESSION (6-9)

Who sells here?

Why do they sell?

Who sells here?

Why do they sell?

• Landlords • Frightened investors

• Rentals far below mortgage repayments • Desperate to sell as prices drop

Who buys here?

Why do they buy?

• Indebted consumers • Mortgage lenders • ‘Must-sell’ owners

• Trying to avoid foreclosure • Selling off foreclosed properties • Relocating locally or emigrating

• Novice investors • ‘Must-buy’ owners • Cash depositors

• Think boom times will never end • Relocated but don’t want to rent • Available deposit, mortgage affordable

Who buys here?

Why do they buy?

• Cash buyers • Professional investors

• Prices low, no interest to pay • Foreclosed property, bargain prices

What turns the Property Cycle Clock at this stage?

What turns the Property Cycle Clock at this stage?

• • • • •

• • • • •

Prices perceived to be excessive Increasing and rising inflation Successive interest rate increases Credit extension starts to decrease Anti-inflationary measures introduced

• • • • •

Lower sales volumes Lower house prices Property takes longer to sell Repossession of properties increase Falling real property prices and negative equity

IN DEBT? ? ..................................... ....................................

TRIKE LET US HELP YOU STRIKE A DEAL WITH YOUR BANK CALL US NOW:

Property oversupply –buyers’ market Low business confidence Stringent inflation checks Unemployment increases Interest rates drive down prices

• • • •

Credit crunch and squeeze High foreign exchange rate Disposable income greatly reduced Personal debt/income ratio increases

>>> BORROWER EDUCATION: H o m e L o a n r a t e s & t r e n d s

Home Loan Rates, Trends & Market Share Mortgage Basics

Telephone book and base rate

Buying a house will possibly be the largest single purchase you enter into and borrowing to finance it (a mortgage), probably the biggest financial undertaking you will ever make. Naturally, you will want to know which mortgage is the best one for you, identifying which mortgage is best for you can be difficult. About 70% of mortgage borrowers consult an estate agent, financial adviser or mortgage originator who can find out which mortgage is the most appropriate, given your financial circumstances, plans, attitude to risk and other preferences. Of course, you can also go directly to your bank and seek their advice MORTGAGE TYPES The most popular mortgage types tend to be fixed rate, variable rate and flexible mortgages; Variable rate mortgages With a variable rate mortgage, the interest rate you pay can vary, moving up and down over time. Every mortgage lender has a standard variable rate that is based on the Repro Rate; the benchmark interest rate set by the Reserve Bank of South Africa. Mortgage lenders set their standard variable rate usually 3.5% above the Repro Rate. So where the Repro Rate is 5.5%, a lender’s standard variable rate would be 3.5% higher, resulting in a mortgage interest rate of 9.0%. Depending on your creditworthiness, the deposit you would pay, your equity in the property and the prevailing economic conditions, you could negotiate the interest rate downwards from here that you would pay.

Fixed-rate mortgages As the name suggests, this type of mortgage allows you to fix the rate of interest you will pay on your mortgage for an agreed period. Most mortgage lenders offer a range of fixed-rate mortgages. As a rule, the longer you fix your rate for, the higher the interest rate you can expect to pay.

Advantages of fixed-rate mortgages 1. They protect you against rising interest rates 2. Regardless of what happens in the economy and how the Repro Rate increases or decreases, the interest rate you are charged is guaranteed to remain the same for the duration of your initial deal period 3. They give you peace of mind, as you know exactly how much will be coming out of your bank account every month with a fixed-rate mortgage. This in turn can help you with your budgeting.

%

ABSA Home Loans

0860 111 007

8.5%

FNB Home Loans

0860 33 44 55

8.5%

Nedbank Home Loans

0860 911 007

8.5%

Standard Bank Home Loans 0860 123 001

8.5%

*SA Home Loans

8.4%

0860 246810

* SA Home Loans uses 3 month JIBAR (Johannesburg Interbank Agreed Rate) as its base rate and adds on a “link rate” of between 2.6% and 3.7% (depending on the client’s risk profile) to calculate the final interest rate given to their clients.

The rates set out in all the tables are subject to change and availability.

Please confirm the latest rates and special offers by contacting the lenders at the telephone numbers shown.

SA ECONOMIC INDICATORS

CURRENT VALUE

SA Prime Rate

(Feb ‘13)

8.5%

Repo Rate

(Feb ‘13)

5.0%

CPI

(Jan ’13)

5.0%

CPI ex OER

(Jan ’13)

5.4%

Mortgages (Base Rate)

(Feb ‘13)

8.5%

interest rates and mortgage repayments Monthly mortgage repayment (calculated over a period of 20 years)

Disadvantages of fixed-rate mortgages 1. If interest rates fall during your fixed rate period, you will not benefit and may feel you are paying over the odds for your mortgage 2. Fixed-rate mortgages come with a fee.

Flexible mortgages (Access Bond) A flexible mortgage allows you to vary your monthly mortgage payments. Your monthly mortgage payment is calculated on the outstanding balance using the prevailing standard variable rate. The best thing you can do with a flexible mortgage is make overpayments. This will allow you to pay off your mortgage early and potentially save many thousands of rands in interest payments.

But the beauty of a flexible mortgage is that it then allows you to borrow back those overpayments if you need to, or you could decide to stop paying your mortgage for a month or two, maybe when expenditure is at a peak. It is important that interest is calculated daily, so that any overpayment is taken off your mortgage as soon as you pay it. A truly flexible mortgage allows you to do the following: • Overpay • Underpay • Take payment holidays • Borrow back overpayments • Calculate your Interest daily

DIGITAL EDITION READ SOUTH AFRICA’S ONLY INDEPENDENT HOME LOAN MANAGEMENT MAGAZINE BEFORE ANYONE ELSE.

Loan amount

Repayment at a mortgage rate of 8.5%

9.0%

9.5%

10.0%

R 100 000

R

R

R

R

868

900

932

965

R 200 000

R 1 736

R 1 799

R 1 864

R 1 930

R 300 000

R 2 603

R 2 699

R 2 796

R 2 895

R 400 000

R 3 471

R 3 599

R 3 729

R 3 860

R 500 000

R 4 339

R 4 499

R 4 661

R 4 825

R 600 000

R 5 207

R 5 398

R 5 593

R 5 790

R 700 000

R 6 075

R 6 298

R 6 525

R 6 755

R 800 000

R 6 943

R 7 198

R 7 457

R 7 720

R 900 000

R 7 810

R 8 098

R 8 389

R 8 685

R1 000 000

R 8 678

R 8 997

R 9 321

R 9 650

R1 500 000

R 13 017

R13 496

R13 982

R14 475

R2 000 000

R 17 356

R17 995

R18 643

R19 300

• Be the first to read each issue of The Mortgage & Consumer Credit Magazine with the new digital edition on our website ● Digital edition comprises the complete print magazine – nothing taken away ● Free access to The Mortgage & Consumer Credit Magazine archives for a limited period

View it now at www.mccm.co.za

>>> borroWer edUCaTIon: h o m e l o a n r a T e s & T r e n d s residentiaL Mortgage approVaL MarKet sHare Q1 2013

totaL HoUseHoLd Mortgage MarKet sHare september 2012 (r189.67bn) other

2.8bn 0.35%

saHL

nedbank

saHL

(2 161 mortgages)

(2 832 mortgages)

investec

8.41%

11.02%

47,0bn

5.95%

(1 804 mortgages)

standard

240,4bn

7.02% other

FnB

6.76%

(5 175 mortgages)

30.43%

(1 737 mortgages)

27.16%

aBsa

214,6bn

20.14%

17.34%

aBsa

(4 456 mortgages)

15.18%

29.31%

17.91%

nedbank

FnB

119.9bn

standard

141,5bn

3.01% investec

(7 531 mortgages)

23,8bn

Source: Lightstone (www.lightstone.co.za)

Source: DI900 SARB & MCCM research

morTGaGes GranTed – sIZe oF aGreemenTs

Agreements R0-R50K

2011-Q2 R000

2011-Q3 R000

52,186

57,960

R51K-R100K

207,741

R101K-R150K

249,958

R151K-R350K R351K-R700K >=R700K

Total

2011-Q4 R000

2012-Q1 R000

2012-Q2 R000

2012-Q2

% Distribution

% Change (Q2/Q1)

% Change (Y/Y)

45,935

52,323

49,879

0.19%

-4.67%

-4.42%

232,248

194,269

188,139

186,123

0.69%

-1.07%

-10.41%

280,198

268 ,629

239,359

244,114

0.91%

1.99%

-2.34%

2,094,388

2,522,200

2,404,369

2,023,747

1,922,175

7.13%

-5.02%

-8.22%

6,215,484

7,667,365

6,994,636

6,051,298

6,647,544

24.67%

9.85%

6.95%

16,628,758

19,518,416

19,405,986

16,008,364

17,893,482

66.41%

11.78%

7.61%

25,448,516

30,278,386

29,313,825

24,563,230

26,943,316

100.00%

9.69%

5.87%

NCR Consumer Credit Report June 2012

morTGaGes GranTed – nUmber oF aGreemenTs bY sIZe

Agreements

2011-Q2

2011-Q3

2011-Q4

2012-Q1

2012-Q2

2012-Q2

% Distribution

% Change (Q2/Q1)

% Change (Y/Y)

R0-R50K

1,642

1,905

1,411

1,914

1,767

4.51%

-7.68%

7.61%

R51K-R100K

2,524

2,822

2,374

2,306

2,264

5.78%

-1.82%

-10.30%

R101K-R150K

1,891

2,126

2,025

1,801

1,841

4.70%

2.22%

-2.64%

R151K-R350K

8,023

9,605

9,031

7,689

7,297

18.62%

-5.10%

-9.05%

R351K-R700K

12,165

14,961

13,743

11,826

12,931

32.99%

9.34%

6.30%

>R700K

12,079

14,347

13,699

11,645

13,098

33.41%

12.48%

8.44%

38,324

45,766

42,283

37,181

39,198

100.00%

5.42%

2.28%

Total

DIGITAL EDITION READ SOUTH AFRICA’S ONLY INDEPENDENT HOME LOAN MANAGEMENT MAGAZINE BEFORE ANYONE ELSE.

• Be the fi rst to read each issue of The Mortgage & Consumer Credit Magazine with the new digital edition on our website ● Digital edition comprises the complete print magazine – nothing taken away ● Free access to The Mortgage & Consumer Credit Magazine archives for a limited period

View it now at www.mccm.co.za

>>> BORROW ER EDUCATION: INTERNATIONAL PRICES, RATES AND ADVICE

International prices, rates and investment advice USA House prices (Oct’12) Median US$ 178 600 CPI (Oct’12) 2.20% Av. 30yr fixed mortgage (Nov ‘12) 3.43% Av. 15yr fixed mortgage (Nov ‘12) 2.82%

UK

Midwest

Northeast

South

West

House price (Oct ‘12 Median) US$

145 600

232 600

152 200

242 10

Annual change (y/y Oct ’11)

+10.60%

+ 4.60%

+8.20%

+21.2%

Sales of existing homes increased in October, while home prices continued to rise due to lower levels of inventory supply, according to the National Association of Realtors. NAR President Gary Thomas said record low mortgage interest rates shouldn’t be taken for granted. “Even with rising home prices, we’ll continue to see favorable housing affordability conditions over the coming year, but they won’t last forever,” he said. “Inflationary pressures are expected to build during the next two years. As a result, mortgage interest rates will also rise with inflation. Buyers who are currently held back by tight mortgage credit standards should work to improve their credit scores so they’ll be able to qualify for a mortgage while conditions are still favorable.” With stringent mortgage underwriting standards, Thomas said it’s very important to understand credit issues and how credit scores work.

England

Wales

Scotland

House price (Q3/2012) Av. £

186 306

132 385

1132 273

London 301 168

Annual change % (y/y’11)

-0.3%

- 4.7%

- 4.0%

+ 2.1%

“Average UK house prices fell by 0.5% in the third quarter, after allowing for seasonal effects. Prices were down 1.6% compared with the same quarter in 2011. A number of metrics suggest that UK housing supply remains low relative to demand. House prices are still fairly high relative to peoples’ incomes,

House prices (Q3 2012) Av £163 910 at least by historic standards. Overall, expect the UK economy to see a gradual recovery over the next twelve months, with house prices remaining relatively CPI (Oct ’12) 2.46% flat or declining only modestly over the same period.”

Fixed rate mortgage 4 yrs 2.99% Standard variable rate mortgage 3.99%

CANADA House prices (Oct ‘12) Av. CAN$ CPI (Oct ‘12) Fixed rate mortgage 10yrs Variable rate mortgage 5yrs

361 516 1.15% 3.69% 2.55%

NEW ZEALAND House prices (Oct ‘12) Median NZ$ CPI (Sept ‘12) Fixed rate mortgage 5yrs Variable rate mortgage

380 000 0.80% 6.57% 5.40%

AUSTRALIA

House prices (Oct ‘12) Av. CAN$

Vancouver

Calgary

Regina

Toronto

Victoria

736 732

418 721

297 688

503 479

464 360

The number of home sales processed through the mLS® Systems of Canadian real estate Boards and Associations was little changed in October 2012 compared to the previous month (-0.1 per cent) and remains below levels reported in the first half of the year.Sales activity improved in about half of all local markets as compared to September, including Greater Vancouver and Greater Toronto. However, in keeping with the national trend, transactions there remain well below levels posted in the first half of the year.On a year-over-year basis, actual (not seasonally adjusted) activity was also little changed, down 0.8 per cent from levels recorded for October of last year. Led by Calgary, sales were up compared to levels one year ago in almost two-thirds of all local markets.

Sales remained below year-ago levels in Greater Toronto, Greater Vancouver, and Greater montreal.

House price (Oct ’12) Median NZ$

Auckland

Wellington

Waikato

Canterbury

530 000

403 000

312 000

343 000

All regions recorded increases in sales volume compared to October last year, with Central Otago Lakes recording an increase of 54.4%, followed by Northland with 52.0% and Hawkes Bay with 47.7%. All regions recorded increases in sales volume in October compared to September, with Taranaki recording a 56.7% increase followed by Wellington with a 27.2% increase and Hawkes Bay with a 23.8% increase. The national median house price increased by $9,000 from $371,000 in September to $380,000 in October; an increase of 2.4%. Auckland’s median house price moved up 2.9% compared to September to a new record median price of $530,000. The national median house price is up 5.8% compared to October last year, while the Auckland median price is up 14.0% compared to October last year. Demand for more expensive homes is rising much faster than the increase in prices or sales volumes. In the past year, sales of houses in the $600,000-$999,999 band increased 73% and in the $1 million and over band sales have increased by 96%.

House price (June ’12) Med. AUS$ Annual change % (y/y ’11)

Sydney

Melbourne

Brisbane

Adelaide

Perth

530 000

470 000

410 000

370 000

460 000

+0.60%

- 4.40%

-0.80%

-3.50%

3.50%

Dwelling values across all of Australia’s capital city housing markets, except Perth and Darwin, fell over October, interrupting a four month run of recovery.

The RP Data-Rismark Home Value Index results for October recorded the first month-on-month decline since may 2012, with the eight capital city aggregate House prices (Oct ‘12) Median. AUS$ 406 415 index falling by -1.0 per cent over the month. The fall was broad-based, with falls being experienced across each of the capital cities apart from Perth and CPI (Oct ’12) 2.00% Darwin. Both Sydney and Brisbane markets recorded a -0.9 per cent fall in values over the month, while melbourne values experienced a larger -1.1 per Fixed rate mortgage 2yrs 5.55% cent fall. Of the mainland capitals, the largest monthly decline was recorded in Adelaide where dwelling values dipped -2.4 per cent in October. On a Standard Variable Rate mortgage 5.68% quarterly basis, most capital cities recorded a rise in dwelling values, with the largest capital gains being found in Darwin (+1.5%), Adelaide (+1.3%) and Perth and Sydney (both +0.7%).

DIGITAL EDITION

READ SOUTH AFRICA’S ONLY INDEPENDENT HOME LOAN MANAGEMENT MAGAZINE BEFORE ANYONE ELSE.

• Be the fi rst to read each issue of The Mortgage & Consumer Credit Magazine with the new digital edition on our website ● Digital edition comprises the complete print magazine – nothing taken away ● Free access to The Mortgage & Consumer Credit Magazine archives for a limited period View it now at www.mccm.co.za

>>> BORROWER EDUCATION: international prices, rates and ADVICE

No letup

World House Price Change (Inflation-adjusted) Country

in global housing

market downturn, aggravating

European crisis N

o end to the global housing market downturn is in sight, except probably in the US, according to a survey of global house price trends by the Global Property Guide. Asia is weakening, and house price falls in the worst-hit European crisis countries are dramatically accelerating.

Good news: The US housing market seems to be recovering. The Federal Housing Finance Agency’s (FHFA) seasonally adjusted purchase-only house price index in the US rose 1.12% year-on-year in Q2 2012, in sharp contrast with the 8.76% decline during the same period last year. On the other hand, the S&P/Case-Shiller

seasonally-adjusted home price index fell by 0.74%, but this was the lowest annual decline since Q3 2010.

Bad news: Europe is sinking deeper. There were alarming price-falls year-on-year in Q2 2012 in Ireland, Spain, Greece, Portugal and the Netherlands (each down more than 10% after inflation). Poland and Cyprus seem also to be slipping into the abyss.

In the worst-affected European countries, house price declines were significantly greater this year, than during the same period last year. House prices fell in 15 of the 22 European countries for which house price data is available. m

year-on-year (%) Q1 2011

Q1 2012

q-o-q (%) Q1 2012

Singapore

8.21



-1.36

-1.26

Estonia – Tallinn

-3.05



9.13

-0.41

Australia – 8 cities

-3.09



-6.04

-1.11

Philippines - Makati CBD

-0.59



7.34

3.87

Latvia-Riga

4.11



-5.83

-0.15

Israel

9.55



-4.94

-0.72

Finland

0.72



-2.05

0.00

Norway

6.87



5.43

2.94

UK (Nationwide)

-4.39



-3.14

-1.73

China-Shanghai

-3.64



-3.68

-2.04

Sweden

0.79



-5.34

-0.38

Japan-Tokyo

3.31



-2.64

0.40

South Africa

-3.88



-5.85

-3.63

Hong Kong

19.80



0.19

0.04

Brazil -Sai Paulo

17.32



18.70

2.57

Russia

-5.94



3.86

1.84

Switzerland

1.02



5.49

0.95

Greece - Athens

-10.45



-11.68

-1.54

India - Delhi

9.07



24.41

-0.07

New Zealand

-4.79



0.82

-0.61

South Korea

-0.98



2.67

-0.43

Portugal

-6.15



-10.45

-3.43

Netherlands

-3.12



-6.05

-1.44

Indonesia - 14 cities

-2.20



-0.13

-0.48

US (FHFA)

-7.44



-2.27

-0.24

Slovak Republic

-5.60



-5.89

-1.91

Spain

-7.93



-9.00

-2.51

Croatia

-6.64



-2.45

-0.10

Poland – Warsaw

-2.73



-10.94

-3.76

Turkey

-0.65



-2.32

0.54

Iceland

-0.81



2.25

-0.42

Bulgaria

-10.20



-6.21

-1.50

Lithuania

-4.37



-3.87

-1.12

Ireland

-13.12



-18.95

-5.19

Austria

-0.50



8.24

8.16

 = more than 1 percentage point increase in house price change  = less than 1 percentage point decrease in house price change compared to same period of last year  = less than 1 percentage point increase in house price change  = more than 1 percentage point decrease in house price change

compared to same period of last year.

Source: http://www.globalpropertyguide.com

DIGITAL EDITION READ SOUTH AFRICA’S ONLY INDEPENDENT HOME LOAN MANAGEMENT MAGAZINE BEFORE ANYONE ELSE.

• Be the first to read each issue of The Mortgage & Consumer Credit Magazine with the new digital edition on our website ● Digital edition comprises the complete print magazine – nothing taken away ● Free access to The Mortgage & Consumer Credit Magazine archives for a limited period View it now at www.mccm.co.za

>>> UNSECURED LENDING

Unsecured lending – on the

edge A new lending monster has arisen which is beginning to show signs of cracking, leading potentially to new levels of unmanageable indebtedness.

A

ugust 2008 will stick in the memories of many people for a long time. Lehman Brothers, one of America’s major banks, crashed and triggered an international financial recession of proportions not seen since the Great Depression of 1929.

Its effects remain with us five years later and there are still no real signs of recovery in sight.

Locally business confidence, quarterly growth and other economic indicators remain as low as they have been at any time since 2008.

The major cause of the

42

recession and its staying power was the reckless extension of credit during the boom years of 2004-2007, resulting in mortgages throughout the world being bloated to unmanageable levels. Rapidly rising house prices, triggered by the freespirited subprime lending that brought new buyers into the markets, creating excessive demand for homes, added to the ballooning of traditionally sound first-world economies. Did the lenders learn much from their indulgences or have they since aggravated the situation by new forms of over-lending?

the mo rtgage & c onsumer credi t mag az i ne July/Aug u st 2013

Post-Recession banking wisdom – unsecured lending In the past five years commercial banks have shifted their lending targets from mortgages to personal loans, overdrafts and other forms of unsecured lending.

No less than 20 million South Africans are now indebted to banks and other credit providers.

The statistics for adverse credit records have increased radically over the same period. In 2008 no less than 6 million South African consumers were blacklisted – that figure has since increased to 9 million. Household indebtedness

has increased to its worst levels ever. The National Credit Act, introduced in 2007 to control reckless lending, seems only to have directed lenders away from mortgages to high-interest unsecured loans. No wonder there is no light at the end of the economic tunnels.

Unsecured loans have increased from R30 billion five years ago to R102 billion today – an increase of nearly 250%. During the same period mortgage lending has dropped dramatically. From R148 billion in 2008 it has decreased to R109 billion – a reduction of nearly

>>> 40%. Unsecured lending by its own definition means only one thing if debtors should begin to default on their monthly repayments. The lenders (mostly commercial banks) will have no assets they can attach to secure their loans. In 2001 Saambou Bank collapsed because of massive defaults on its microloans. The bank, with only R16 billion in assets and very little of that liquid, lost nearly R1 billion in a matter of months as investors added to its woes by doing a run on the bank, withdrawing investments as quickly as they could. Less than a year earlier Saambou had produced a glowing annual report, disclosing that its micro-lending (the unsecured lending medium of its time) had increased from 13% to 24% of its total lending in just twelve months. Macro-collapse soon followed and the bank simply imploded and disappeared.

What triggered the shift to high-interest rate loans?

In a recent article in the Business Times (Sunday Times 9th June 2013) Riaan Stassen, CEO of one of the country’s major unsecured lenders Capitec Bank, stated that one of the reasons that this market has

The whole purpose of the National Credit Act was to curb reckless lending.

Instead statistics may soon show that it has merely been aggravated during the years of its operation.

grown so much in recent years is the major changes in South African society that were not being addressed by the mortgage and secured lending markets.

He added a few other causes.

Credit cards and overdrafts had previously only been available to consumers in higher-income sectors. Unsecured lenders were restricted to loans of no more than R10 000 over 36 months or less. All the reasons advanced by roleplayers in the credit market follow this pattern – economic factors have simply shifted the emphasis from secured lending to high-income earners to unsecured lending to a more broadly-based market. But the real reasons are not being disclosed. The fundamental

UNSECURED LENDING

In the boom years, spurred by fierce competitiveness, banks put their ever-circling money supply into the only market that could sustain the circulation – mortgages. are on a knife-edge. Massive defaults, very likely if inflation and interest rates should suddenly start rising, could dump a few more Saambous onto the ashheap of reckless lending.

Why hasn’t the NCA had its desired effect?

The whole purpose of the National Credit Act was to curb

changes?

The problem with the NCA, something of a paper tiger since its introduction, is that it only serves to punish reckless lenders after the deed is done and only those cases that are reported to the NCR. The legislation needs to be amended to prevent over-lending, not to cure it. No one wants regulation in any

Directed lenders away from mortgages to high-interest unsecured loans. motivation has been a grim determination by mortgage lenders to offset their overblown home-loan books by targeting a market that attracts interest rates around 17% to 24% irrespective of the obvious risks involved.

In the boom years, spurred by fierce competitiveness, banks put their ever-circling money supply into the only market that could sustain the circulation – mortgages. Despite the relatively low borrowing-to-lending ratio (only a 3.5% margin) lenders freely offered discounted rates around 2% off-prime to an everburgeoning market. Since 2008 mortgage defaults, protracted foreclosures and increased inhouse recovery expenses have made heavy inroads into the minimal 1.5% profit margin remaining. The last thing banks want right now is to inflate their mortgage books further. Hence the shift to unsecured lending.

Banks are aiming at balancing their losses by reaping the fruits of maximum interest rates. The cliff-face, however, is drawing ever closer and some lenders

reckless lending. Instead statistics may soon show that it has merely been aggravated during the years of its operation. The National Credit Regulator is well aware of the growing economic albatross and is taking steps to curb reckless lending. Right now the Regulator’s office is drawing a thin line between reckless and unsecured lending, increasingly regarding the latter as essentially reckless in itself. The Department of Trade and Industry recently gazetted its National Credit Amendment Bill which is intended to curb the growing debt crisis. Extended punitive powers will be given directly to the Regulator and reckless credit agreements will be referred directly to the National Consumer Tribunal for redress in future. Presently these may only be condemned by the courts. Other measures, such as obliging lenders to approve or reject applications within 7 days (to curb access to other forms of credit extension in the meantime) will be introduced.

But will this result in effective

industry that restricts free market initiatives, but if banks cannot be trusted to manage their own affairs sensibly something has to be done to contain their lending powers upfront. Local banks have shown scant respect for the lessons they should have learned from the excessive mortgage lending that triggered the 2008 recession. Instead they have simply burgeoned national indebtedness further and have done this with very little hope of recovering their unsecured loans if their borrowers should default on a grand scale (a very possible outcome if interest rates should rise substantially before the national economy begins to recover). The NCR’s draft affordability guidelines incorporated in the new Amendment Bill may have to be replaced with legislative restrictions that can be enforced against lenders who continue to disrespect the growing economic stagnation caused by consumers continuing to lose their disposable incomes to highinterest rate indebtedness. m

t h e m ort ga ge & con su m e r cr e d i t m a ga zi n e J u ly / A u gu st 2 0 1 3

43

>>> BORROW ER EDUCATION: DEBT FREE

Digging your way out of

debt

All financial crises are the result of ‘debt that, in one way or another, has become dangerously out of scale.’ If you feel your debts have escalated faster than your income, putting you under tremendous stress and pressure, here are some ways that will help you reduce the money you owe and avoid sliding back into financial trouble again.

O

f course, before you decide to attack your debts, you need to accept you have a problem which won’t go away unless you decide to work at it; you can’t get through a difficult time without examining it! Getting yourself into debt is the easy part.

Getting yourself out of debt is harder, but not impossible with the right planning.

Debt is all money you have borrowed and which has to be repaid. This includes credit cards, store cards, personal loans, bank overdrafts, motor car loans, money borrowed from

44

friends and family, and your home loan. In most cases , if you are able to stay ahead of the monthly repayments, debt is not necessarily a bad thing. It’s only when you lose control that accumulating debt becomes an issue and turns into a monster.

Good debt VS bad debt Getting through life and staying out of debt is not a realistic option for most people.

Somewhere in life you need to be in debt. How else would most be able to purchase a home or a motor car? The smart way is being able to

T HE Mo rtgage & consumer credi t MAGAZ INE July/Augu st 2013

identify what many term ‘good debt’ and ‘bad debt.’ Good debt allows you to buy items that appreciate in value over time or could provide you with an additional source of income, termed assets.

Bad debt, on the other hand, only buys you items that lose value over time. They depreciate in value from the day you buy them. Consumer goods are a good example – fridges, washing machines, plasma T.V’s, furniture, an expensive watch, etc. There is nothing wrong with accumulating consumer goods, however you need to

have the income/savings to pay for them in cash, or pay them off at a faster rate than they depreciate (you can’t pay off a fridge over ten years as the ‘life expectancy’ could be only five years, at which stage you would need to buy another one over a period of time, ending up paying off two fridges, while only having one).

We all need a financial plan Although we all know we should have a financial plan, the hard truth is that most South Africans don’t have a financial

>>> BORROWER EDUCATION: DEBT FREE plan to manage their money.

On the rare occasion where there is a financial plan in place, it is usually inadequate – little more than making sure the minimum amount is paid on time, ‘before the interest free’ period runs out, or just to ensure the electricity does not get ‘cut off .’

There is no such thing as ‘interest free’, just as there is no such thing as a ‘free lunch.’

>>>

‘Interest free’ is merely a powerful marketing ploy aimed at getting you to live beyond your means by thinking you can afford to ‘buy now and pay later.’

The trap is that you still have to pay, and you will have new debts later because you will see other consumer goods you want and cannot live without. All you are doing is accumulating debt.

If you cannot afford it now,

how will you be able to afford it later? Lenders make money from people who like using credit. By giving you access to their money, they are making more money for themselves.

They charge you for letting you use their money - joining fees, access fees, club fees, application fees – the operative word being ‘fees.’ Anything you pay out to lenders is money that you have lost and will never

see again. So when it comes to debt, play it really smart and make sure you are using your credit for ‘good debt’ purposes.

With your debts mounting, you need options, not advice about how good a financial plan would be. Right? Wrong! Not thinking got you into this mess in the first place, only thinking will get you out.You now need a financial plan and strategy more than ever. M

5 WAYS YOU CAN TAKE CONTROL OF YOUR DEBT

1

Track your spending Your first step is to start tracking how you spend your money for a month or two.

It’s really simple. Every time you spend money, write it down. R6.00 for a cold drink? R13 for a sandwich? Write it all down. You will not believe how much you spend on low-value consumer goods. You also don’t realise how much money you can waste because you don’t think about it. Get into the habit of writing down your expenses, it will tell you volumes about your spending habits.

4

Roll over debts Interest rates can be crippling on credit cards. A few lenders will consider discussing consolidating your banking requirements (cheque, insurance, savings, home loan, debit cards etc.) and offer reduced interest rates and charges depending on the number of products and services you use from a lender. Shop around for a competitive rate and take advantage of them to reduce the interest you are paying on your debt.

EBT SURELY, ‘D REVIEW’ IS ONLY NOT THE ANSWER!

2

Develop a debt-attack plan It took effort by you to build up big debts, so it’s going to take effort to reduce your debts. But, like the military rule of ‘divide and conquer’, think of it as your own ‘debt-attack’ plan. Remember you are not going to achieve anything unless you embrace a lifestyle-change plan. The first thing you are going to notice is that you cannot afford to pay off all your debts at once. So, start by paying off the smallest one and when that is paid off, add that repayment to the new smallest debt you have. You’ll be surprised how much debt you can clear with a decent payment plan.

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3

Debt consolidation Although debt consolidation can end up costing you dearly if you let the loan run too long, it can be an excellent way of focusing your debt control in one direction. ‘Bad debt’loans such as credit cards can be targeted and reduced by using this avenue, but only if you are prepared to pay off your debt through a further loan using your property as security.

The dreaded budget If you spend money, you need to budget. The best start you can make is to ‘skim’ about 15 %to 20% off your income to repay your debts. Depending on the amount of your debt you may have to go higher initially. With your home loan repayments claiming up to 30% of your household income, finding money to pay off debts is going to be difficult. By putting yourself on a budget and tracking how you spend money means that you will be inconvenienced for a short while, but in the end, you’ll be armed with the right tools to never become a credit victim again.

Having a financial plan doesn’t mean you have to miss out on the good things in life – it means budgeting to get them.

Are you struggling to keep up with your mortgage payments? Is your mortgage in arrears, or about to be? Are you wondering if there is a way to solve the problem?

REPO REPOSTOP CAN HELP YOU

specializes in debt resolution and negotiation with banks and lenders. Our consulting process is designed to assist in restructuring and maintaining personal financial programmes that are tailored to your personal circumstances and acceptable to your bank and other lenders. Contact: 021 913 9106

>>> CONSUMER RELIEF

High

unemployment rate worsening

over-indebtedness levels T

he high rate of unemployment in South Africa continues to exacerbate already high levels of over-indebtedness in South Africa, says Credit Ombud, Manie van Schalkwyk.

He was commenting on the release of Stats SA’s latest Quarterly Labour Force Survey which shows an unemployment rate of 24,9% in the fourth quarter of 2012. Although this is a minor improvement compared to the unemployment rate of 25,5% in the third quarter, it remains worryingly high.

The expanded definition of unemployment, which includes people who have stopped looking for work, was at 35.9% in the fourth quarter, from 36.3% previously.

“Many people simply can’t find work and this is affecting households’ ability to pay back their debts,” says Van Schalkwyk.

“We’re seeing high levels of overindebtedness across the country.”

The ratio of household debt to disposable income amounted to 76.3% in the second quarter

46

of 2012 and in September 2012, the National Credit Regulator (NCR) reported that of the more than 19,69 million credit-active consumers, more than 9.25 million (47%) had impaired records.

Van Schalkwyk cautions consumers who have lost their jobs and who are unable to find work to contact their credit providers as soon as possible and tell them about their change in circumstances, to improve their chances of renegotiating their repayment terms.

“Credit providers are more willing to negotiate lower repayment terms the sooner they are told about your loss of income,” says Van Schalkwyk.

“Once you are three months in arrears, it may be too late and you’re likely to be negatively listed at a credit bureau.”

He says many consumers apply for credit, assuming their income is secure, but do not plan for a loss of income.

“If you do lose your job, ensuring that you pay off your debts on time should remain

THE MO RTGAGE & C ONSUMER CREDI T MAG AZ I NE JULY/AUG U ST 2013

a priority, even if this means selling some of your assets to do so,” explains Van Schalkwyk.

“The longer you have outstanding debts, the more you will pay in interest charges and eventually legal fees too.”

He offers the following tips to deal with your debt if you lose your job:

Prioritise your debts Your home loan, rent or utility bills are classed as priority debts.

Fail to pay these debts and you could lose your home or be evicted, have your electricity cut off , or have essential items (such as your car) repossessed. But also list which debts have the highest interest rates, such as credit cards, unsecured loans and bank overdrafts and figure out how to pay these off as soon as possible as the interest rates are usually higher and will soon mount up, tipping you into a debt spiral.

Check if you have cover You may not realise that you have income protection cover.

Ask your credit provider

whether your home loan, loan or credit card is covered by insurance.You can use this to replace some of your income and keep up your repayments.

Redo your budget Get a clear idea of what’s coming in and what’s going out. The amount that’s left after paying for your household bills, your living expenses, plus repayments and interest on anything you owe is what’s available to start paying off your debts more quickly. Cut back on all unnecessary spending.

Use your redundancy package wisely You can also use redundancy pay or savings to pay off some of your debt. Start with priority debts first.You’ll need to try and stretch this out for as long as possible, so avoid spending it as soon as you get it.

Credit Ombud Helpline: 086 166 2837 www.creditombud.org.za

>>> BORROWER EDUCATION: PROPERTY FINANCIAL SKILLS

10

Property financial terms

you need to understand Make sure you understand these financial terms that could mean the difference between ‘cashing -in’ or ‘cashing-out.’

1

4

2

5

Median property value

Is the middle price in a series of property sales: half the sales are of a lower value and half are higher. Median values are a more accurate indicator of the true market activity than average prices as median values are unaffected by unusually high or low property prices.

Mean property price (Average price) The mean house price is calculated by adding up the value of all sales over a set period (month, year) and dividing the total value by the total number of sales. One problem with using the mean to calculate property values is that it may not depict the typical outcome. A sale that is significantly high or low can skew the data, strongly affecting the outcome.

3

Capital return If you bought a property with a market value of R600 000 a year ago and a year later has grown to a market value of R720 000, you have made a capital return of 20% (i.e. R720 000– R600 000]/R600 000)

Income return (or income yield) The income return on a rental property investment. This refers to the rental received and is usually expressed annually as a percentage based on the rental property’s investment cost and its current market value.

Gross income yield The gross yield of a rental property is similar to calculating the gross profit of a business, before all the costs of running the business are deducted. Gross yield is calculated by taking the annual rent realized by the property, and dividing it by the property’s value, with the final figure expressed as a percentage.

For example: if you bought a property that generated an annual rent of R42 000 (R3 500/month x 12 months) a year ago for R600 000, then the gross income yield on this investment was 7%. Gross income yield = annual rent divided by property value x 100

6

Net income yield What is more relevant is the net income yield. In other

8

words, where do you stand once you’ve taken all of a property’s ‘operating costs’ into account? Looking at our previous example, let’s say our annual expenses — including insurance, mortgage payments, a provision for maintenance, rates and taxes (or levies, in the case of townhouses and flats) — came to R13 800 per annum.

You would deduct this from the annual rental received of R42 000, leaving you with a balance of R28 200, which would in turn be divided by the value of the property (R600 000).

Your net yield is therefore 4, 7%. Net income yield = (annual rent – annual expenses) ÷ property value x 100

7

Total return

Home Equity Is he current market value of a home minus the outstanding mortgage balance. Home equity is essentially the amount of ownership that has been built up by the holder of the mortgage through payments and appreciation.

9

Negative home equity Means that what you owe on your home (your mortgage), is higher than the current value of your home. Negative equity often occurs when a homeowner purchases a home using a large mortgage and then the economy starts to slow or home prices start to drop.

10

Total return on a rented property is simply your net income return plus your capital return. In the example above, the total return that the investor made during the first year of the investment was 24, 7% — i.e.

4.7% net income return plus 20% capital return.

Home Debtor An individual who holds a large mortgage with little or no equity in the home. The term “home debtor” is often used to describe those who will likely never be able to pay off their mortgage because of the costs associated with home ownership, such as property taxes, mortgage payments, insurance and necessary repairs. m

t h e m ort ga ge & con su m e r cr e d i t m a ga zi n e J u ly / A u gu st 2 0 1 3

47

>>> SMART TENANTS

9 Tips

for tenants

1 2

The best way to win over a prospective landlord is to be prepared. To get a competitive edge over other applicants, bring the following when you meet the landlord.

Bring your paperwork A completed rental application; written references from landlords, employers, and colleagues; and a current copy of your credit report.

Review the lease.

Carefully review all of the conditions of the tenancy before you sign on the dotted line.Your lease or rental agreement may contain a provision that you find unacceptable -- for example, restrictions on guests, pets, design alterations, or running a home business.

3

Get everything in writing.

To avoid disputes or misunderstandings with your landlord, get everything in writing. Keep copies of any correspondence and follow up an oral agreement with a letter, setting out your understandings.

For example, if you ask your landlord to make repairs put your request in writing and keep a copy for yourself. If the landlord agrees orally, send a letter confirming this.

4

Protect your privacy rights.

Next to disputes over rent or security deposits, one of the most common and emotionfilled misunderstandings arises over the tension between a landlord’s right to enter a rental unit and a tenant’s right to be left alone. If you understand your privacy rights (for example, the amount of notice your landlord must provide before entering), it will be easier to protect them.

5

Demand repairs.

Know your rights to live in a habitable rental unit -- and don’t give them up. The vast

But unless you have the law and provable facts on your side, fighting an eviction notice can be short-sighted.

48

THE MO RTGAGE & C ONSUMER CREDI T MAG AZ I NE JULY/AUG U ST 2013

majority of landlords are required to offer their tenants livable premises, including adequate weatherproofing; heat, water, and electricity; and clean, sanitary, and structurally safe premises. If your rental unit is not kept in good repair, you have a number of options, ranging from withholding a portion of the rent, to paying for repairs and deducting the cost from your rent, to calling the building inspector (who may order the landlord to make repairs), to moving out without liability for your future rent.

6

Talk to your landlord.

Keep communication open with your landlord. If there’s a problem -- for example, if the landlord is slow to make repairs -- talk it over to see if the issue can be resolved short of a nasty legal battle.

7

Protect your security deposit.

To protect yourself and avoid any misunderstandings, make sure your lease or rental agreement is clear on the use and refund of security deposits, including allowable deductions.

When you move in, do a walk-

through with the landlord to record existing damage to the premises on a checklist.

8

Protect your safety.

Learn whether your building and neighborhood are safe, and what you can expect your landlord to do about it if they aren’t. Check out the property’s vulnerability to intrusion by a criminal, and learn whether criminal incidents have already occurred on the property or nearby.

9

Deal with an eviction properly.

Know when to fight an eviction notice – and when to move. If you feel the landlord is clearly in the wrong (for example, you haven’t received proper notice, the premises are uninhabitable), you may want to fight the eviction. But unless you have the law and provable facts on your side, fighting an eviction notice can be short-sighted. If you lose an eviction lawsuit, you may end up hundreds (even thousands) of rands in debt, which will damage your credit rating and your ability to easily rent from future landlords.

IN DEBT? .....................................

LET US HELP YOU STRIKE A DEAL WITH YOUR BANK .....................................

CALL US NOW Having debt can be extremely stressful for anyone. The problem is that often people are too afraid to face their bank or lender and ignore the growing problem until it is too late. The biggest mistake they can make is to ignore their financial problems and hope they will just go away.

They don’t.

The quicker financial problems are recognised and help from the bank or lender is obtained, the more likely a workable solution to the problem will be achieved; preventing further litigation, legal costs and damage to an individual’s credit worthiness.

At ConsumerPlus we specialize in debt resolution and negotiation with banks and lenders.

Our consulting process is designed to assist in restructuring and maintaining personal financial programmes that prevent clients from being placed under debt review.

At ConsumerPlus we believe that financial solutions are rarely a ‘one-size-fits’ all situation.

Financial options need to tailored to your personal circumstances and acceptable to your bank and other lenders.

If you want to Change your financial future today contact ConsumerPlus so that we can provide a customized resolution for you.

Why ConsumerPlus Financial Restructuring Mediation Works Experience: We have been restructuring our client’s financial affairs and mediating with banks for many years.

Expertise: We are a team of experts; lawyers, actuaries and accountants who are able to analyze your financial position and propose workable solutions between you and your bank.

Relationships: We have sound relationships with all banks. All banks are clients of ours and we are able to propose workable financial solutions between you and your bank.

Reputation: The banks trust us to negotiate in good faith, which we do – our reputation is very important to us; and you receive the benefit of that trust.

Cost: Our service will cost you nothing. We are paid by the financial institutions.

If you would like to review or modify your current arrangement with your bank If you would like to propose, review or modify new or current arrangements with your bank contact us on our ConsumerHelp line: JHB: 011 885 2749 CPT: 021 880 1957

>>> BORROW ER EDUCATION: knowled ge

Mortgage

Glossary This Mortgage Glossary simplifies the most commonly used home loan and finance terms making it easier for you when buying and managing your property.

Amortising loan The formal term for a standard principal and interest loan.

Arrears

Overdue repayments.

Asset

An item owned with a monetary value.

Bridging finance

A temporary loan taken against the profits of a property transaction

Capital gains tax

Tax payable on the profit made when selling an investment property.

Comparison rate

previously held separately into one merged amount.

Debt Review

A means of managing your debts when these become unmanageable.

Debt Servicing Ratio (DSR) The Debt Servicing Ratio measures whether you can afford the mortgage payments.

To calculate the DSR, the lender uses a number of factors to work out the amount of your income that is available to repay the debt.

A report outlining an individual's credit history.

Daily interest

Interest calculated on a daily basis.

Most variable rate mortgage loans calculate interest on a daily basis.

Debt consolidation

To combine one or more debts

50

Legislation covering consumer protection and consumer rights.

Are assets, either in cash or easily convertible to cash.

Ombudsman

An agreement between two parties where the amount due to be paid on a given date may be postponed until a later date.

The value of the loan divided by the value of the property that the loan is for (eg. if you buy a R500,000 property and need a R350,000 loan - your LTV is 70%).

Depreciation

Credit report

National Consumer Protection Act

Failure to make a loan repayment by a specified date.

Default

Any variation or alteration to the terms of a contract.

The legal work carried out by an attorney to transfer ownership of a property.

Lender

sale of the property held under the deed of mortgage in order to recoup unpaid monies owed under the terms of the agreement.

National Credit Regulator

Deferred payment

Conveyancing

Investment property is negatively geared when expenses exceed rental income. Investment property is positively geared when the rental income received is greater than the total amount of the expenses.

A person or organisation who provides money to another on the understanding that it will repaid according to set guidelines and terms.

A rate which includes fees and charges so loans can be compared on an equal basis (eg. a loan with a low advertised rate but high fees might cost the same as a loan with a higher advertised rate but low fees).

Contract variation

Gearing

Deposit

A down payment on the purchase price of the property.

The amount claimed on an investment property for the reduction in the value of an item.

Equity

The difference between your mortgage and your property's value.

Fixed interest

An interest rate that is locked in for a fixed term, you are then protected against possible interest rates rises for the selected 'fixed' term period.

the mo rtgage & c onsumer credi t mag az i ne July/Aug u st 2013

Liquid assets

Loan To Value(LTV)

Mortgage

A loan for the purpose of purchasing a property, where the property is used as security.

Mortgagee

The lending institution.

Mortgagor

The borrower (you).

Mortgage Assurance Mortgage Assurance is a monthly insurance premium that protects the lender and you by paying your mortgage should you die.

Mortgage foreclosure

Where the lender forces the

The ombudsman appointed under the NCA to monitor reckless lending and to ensure its provisions are complied with by credit providers.

Independent body established within a particular industry to investigate and resolve disputes as an outside party to the dispute.

Principal

The amount of capital borrowed.

Refinance

‘Switching’ your loan from one product (or lender) to another, usually with a better interest rate or conditions.Your initial loan is paid out and your debt is transferred across to the new product or lender.

Repossess

To reclaim possession of goods or assets for failure to make payments within agreed terms.

Title Deed

Document showing who owns the property as well as all the associated details of size and whether there is a mortgage registered on the title. M

>>> BORROWER EDUCATION: CREDIT HEALTH

Numbers don’t lie what makes a good credit score?

Your credit score can mean the difference between being denied or approved for credit, and a low or high interest rate. A good credit score can help you qualify for a property rental agreement with a reduced deposit and even help you negotiate better terms and conditions on most financed purchases.

What is a credit score?

Elements of your credit score

Your credit score is a threedigit number generated by a mathematical algorithm using information in your credit report.

It’s designed to predict risk, specifically, the likelihood that you will become seriously delinquent on your credit obligations in the 24 months after scoring. There are a multitude of credit-scoring models in existence, but there’s one that dominates the market: the FICO credit score. According to myFICO.com, a USA based organization, the consumer website for the FICO score developer, “90 percent of all financial institutions in the U.S. and most SA financial institutions use FICO scores in their decision-making process.”

FICO scores range from 300 to 850, where a higher number indicates lower risk. So, what is a ‘good’ FICO score? Typically, a consumer has three FICO scores, one for each credit report provided by the three major credit bureaus: There are 3 key credit bureaus that keep your credit history in S.A. - TransUnion, Experian and XDS. To comprehensively check your credit history, you need to know what each of these bureaus is saying about you.

• Payment history: (35 percent) – Your account payment information, including any delinquencies and public records.

• Amounts owed: (30 percent) – How much you owe on your accounts. The amount of available credit you’re using on revolving accounts is heavily weighted.

• Length of credit history: (15 percent) – How long ago you opened accounts and time since account activity.

• Types of credit used: (10 percent) – The mix of accounts you have, such as revolving and installment.

• New credit: (10 percent) – Your pursuit of new credit, including credit inquiries and number of recently opened accounts.

Personal or demographic information such as age, race, address, marital status, income and employment don’t affect the score.

35% 15% 10% 30%

What goes into a credit score?

Data from your credit report goes into five major categories that make up a FICO score. The scoring model weighs some factors more heavily, such as payment history and debt owed.

• • • • •

10%

Payment history Amounts owed Length of credit history Types of credit used Source: myFICO.com New credit

Different score impact for same missteps How much does a specific change affect a credit score?

The answer is usually “it depends,” and for good reason.

Credit score developers don’t reveal the exact point reductions. The weight of any given activity can also vary for different credit histories Within a scoring model, there’s more than one formula used to calculate a score, and each formula is designed for a category of consumers with similar credit profiles. The information in your credit report determines which formula is used. If you are new to credit, for instance, the scoring model will put you into a category for people with young credit histories, and use a scoring formula specific to that group.

Such groups are called scorecards. Within that group, recent inquiries may cost more points than they would for a different group.

How to check your credit score South African law mandates the consumer’s right to a free credit report annually from each credit reporting agency, but not to a free credit score.

You can speak to your branch banker who does have access to your credit score and would be willing to share this with you. M

T H E M ORT GA GE & CON SU M E R CR E D I T M A GA ZI N E J U LY / A U GU ST 2 0 1 3

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>>> SERVICE DIRECTORY LISTINGS For complete financial solutions www.absa.co.za t: 0860 008 600

sales@nationwidepropertynetwork.co.za www.nationwidepropertynetwork.co.za Office: 0861 66 66 76 Fax: 0866 55 93 83

www.stbb.co.za Cape Town 021 406 9100 | Claremont 021 673 4700 Fish Hoek 021 784 1580 | Tygervalley 021 943 3800 Tableview 021 521 4000 | Somerset Mall 021 850 6400 Johannesburg 011 853 8300

www.justresidential.co.za | www.justpropertygroup.co.za

The Banking Association South Africa Telephone number: (011) 645 6700 Fax: (011) 645 6800 w: www.banking.org.za e: webmaster@banking.org.za

BE INFORMED BEFORE YOU BUILD OR BUY YOUR HOUSE WWW.NHBRC.ORG.ZA 0800 200 824

0861 66 2837 www.creditombud.org.za. t: 011 645 9100 f: 011 484 6588 e: info@xds.co.za w: www.xds.co.za

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THE MO RTGAGE & C ONSUMER CREDI T MAG AZ I NE JULY/AUG U ST 2013

t: 011 463 2794 | f: 086 510 9286 | e: info@olemera.com PO Box 3052, Northriding, 2162

www.olemera.com Helpline: 086 111 6362 Ground Floor, Silver Fern Fax: 011 781 0589 Fernridge Office Park Email: info@ndma.org.za 5 Hunter Street Website: www.ndma.org.za Ferndale, Randburg

IS DEBT WEIGHING YOU DOWN?

NOT SURE WHAT TO DO? TAKE A STEP IN THE RIGHT DIRECTION AND CONTACT THE NDMA FOR FREE DEBT MANAGEMENT AND MEDIATION SERVICES.

Are you finding it difficult to repay your debts? Are you afraid to approach your credit providers? Are you unsure about the options available to resolve your situation? Have you received a section 129 notice and are not sure what to do? Are you under debt counselling and not happy with the actions of your credit provider?

Is the Credit Provider concerned a member of the NDMA?

CEO - Magauta Mphahlele

We can also assist you with complaints against credit providers relating to: • Termination of Debt Review cases and related debt enforcement actions; • Legal action taken while you are under debt counselling; • Unreasonable non acceptance of restructuring proposals; • Slow or no Response to debt review applications; • General non compliance with the Code of Conduct.

OFFICE ADDRESS: Ground Floor, Silver Fern Fernridge Office Park 5 Hunter Street Ferndale Randburg

IF YES. the NDMA is empowered by the Credit Industry Code Of Conduct to Combat OverIndebtedness, which has been approved by the National Credit Regulator (NCR), to mediate between consumers, debt counsellors and affiliated credit providers.

The NDMA complaints handling and debt mediation service is completely neutral (objective) and independent and our services are free to consumers and debt counsellors.

Don’t wait until it is too late!

Take action now!!

NDMA...The linchpin of cooperative debt resolution in South Africa

Helpline: 086 111 6362 Fax: 011 781 0589 Email: info@ndma.org.za Website: www.ndma.org.za

House hunting is about details – now capture every one.

Searching for your dream home can be confusing – so many houses, each with different features. It’s often hard to remember and compare the details of all the homes you’ve seen!

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Homes4Me will store all the info on each house – including photos, geotags, price and bond instalment – ranking them according to your “must have” criteria.

So you can easily compare your favourites and settle on that one dream home.

Homes4Me – another fresh approach by SA Home Loans.

THB/36302/H

Download it for free at sahomeloans.com/apps or find it at the app store on your phone. Homes4Me is also on our mobi-site m.sahomeloans.com

0860 2 4 6 8 10 | WWW.SAHOMELOANS.COM Terms and Conditions apply. Please refer to our website for further details. SA Home Loans is a Registered Credit Provider. Registration Number NCRCP1735.