The Mortgage & Consumer Credit Magazine Issue 34 by The Mortgage & Consumer Credit

Issue 34 | December/January 2013/14 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

No mortgage fireworks in 2014 Consumers waiting patiently for signs of a genuine recovery.

Consumer debt watch Demand for credit is suffocating whole sections of the economy.

Borrowing when retired Should you borrow against your home loan when you are already retired.

Skipping a monthly payment

Which is better – to skip a bond payment, car instalment or credit card repayment? 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

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

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View it now at www.mccm.co.za

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

Be informed before you build or buy your house. Ensure that your home builder is registered with the NHBRC. Ensure that your home builder enrols your home with the NHBRC. When you enrol your home the NHBRC will: Conduct a minimum of four (4) inspections on your home; and Deal with complaints of non-compliance during construction. Your enrolled home will be covered for five (5) years by the NHBRC warranty scheme on major structure defects, from the day of occupation.

Quality is our Priority The National Builders Registration Council (NHBRC) is a statutory body with the responsibility to provide protection in terms of the Housing Consumer Protection Measures Act, 1998 (Act No 95 of 1998). It is mandated to provide protection for housing consumers against defined defects and to regulate the home building industry. Toll free: 0800 200 824 For more information go to: www.nhbrc.org.za

Contents

S a’ s L eading home loan & C redit management maga z ine

December/January 2013/14 • I s s u e 3 4

FEATURES

NO MORTGAGE FIREWORKS IN 2014 Consumers are waiting patiently for signs of a genuine economic recovery.

CONSUMER DEBT WATCH

Credit market reports and other statistical releases indicate that the burgeoning demand for credit throughout South Africa shows few signs of diminishing and suffocating whole sections of the economy.

FOCUS ARTICLES

THE CONSUMER PROTECTION ACT AND RESIDENTIAL PROPERTY SALES

Are ordinary sellers of residential homes now obliged to provide full disclosure certificates of all defects on their properties and can their buyers hold their agents accountable for undisclosed defects? Has the voetstoots clause become redundant?

BORROWING WHEN RETIRED Should you borrow against your home

loan when you are already retired? When should you do this, how much should you borrow, and in what circumstances would you feel it necessary or advisable to do so?

SKIPPING A MONTHLY PAYMENT Which is better – to skip a bond payment, car instalment or credit card repayment?

KNOWLEDGE & RESOURCES

06 18

PRE-APPROVED Making it bigger and better.

SA’S NATIONAL HOUSE PRICES

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

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.

INTERNATIONAL RESIDENTIAL PROPERTY PRICES, RATES AND ECONOMIC INSIGHTS

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.

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.’

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

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.

THE PROPERTY CLOCK

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.

HOW TO CHOOSE YOUR HOME LOAN

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

DIGGING YOUR WAY OUT OF DEBT

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

HOME BUYING PROCESS

You ownership ‘compass’ that explains everything.

YOUR WEALTH

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

YOUR GUIDE TO CONSUMER RIGHTS Understanding and enforcing your rights

as a consumer.

MONITORING, MANAGING AND FIXING YOUR CREDIT RATING

Economic times continue to be tough and credit is harder to get. A good credit rating is vital in these times. Here’s how to get your credit profile into shape.

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

Current voices

SA HOME LOANS: SOUTH AFRICA’S LARGEST NON-BANK MORTGAGE LENDER As an estate agent you could well be denying your client a home loan and yourself a sales commission, says Crispin Swainston Harrison, Director, SA Home Loans, furthermore having SA Home Loans as an option increases the number of lenders you might currently be dealing with by 25%.

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.

the mo rtgage & co nsumer credit magazine December/ january 2013/ 14

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

REPOSTOP

DON’T LEAVE IT TOO LATE

– 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.

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. Q: If I subscribe, will you represent me in legal action against me? 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. Q: Are you debt counsellors? A: No. We are attorneys who assess your circumstances and provide a range of potential solutions, one of which may be debt review.

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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

>>> PRE-APPROVED

Making it bigger and better South Africa paused recently as we celebrated the life of Nelson (personal and other forms of unsecured loans – the curse of the general Mandela, a commemoration which the rest of the world visibly shared consumer). Instead of our people finding ways to breathe fresh air and with us. Few politicians have been so loved and appreciated. Locally look forward with hope to the future, many of them are wondering the effect he had on our nation’s future was tangible and real, not how to cope with unmanageable debt. The National Credit Act was just an image such as the one honoured on sports fields, governments designed to prevent further misery for ground-level consumers, yet it and in other spheres, but a living reality which his passing so forcibly has proved to be something of a toothless tiger in the face of rising brought back to our memories. He took two different peoples, heavily debt-strangulation. Nearly 50% of employed South Africans have adverse credit divided by political oppression, economic inequality and growing antagonism, and united them in a vision for a common future in records. That has effectively shut the doors both before and behind which we could all live together and work for a better future. He them to future wealth creation, especially better economic times to come when opportunities for financial generated a new goodwill that gave us a may be more prevalent. headstart that few other nations in history We are going to advancement Money lenders have strongly promoted have ever enjoyed. A victim of the system he had willingly opposed at the risk of concentrate on regular consumer unsecured lending as the path to future economic advancement, but for many it his own life, he nevertheless aimed to rise issues as much as mortgage has done no more, coupled with punitive above the divisions that kept us apart to rates way above the prime rate, than give us a hope for the future. Even in death bonds as it is here that most interest to hamstring them and force them to apply he united us again and reminded us of his their disposable monthly income towards legacy, vision and purpose. Madiba, we will consumers are hurting. debt relief rather than the usual privileges never forget you. That legacy remains our of excess income such as holidays away, new motor vehicles and finest inspiration. For many South Africans, though, day-to-day realities reflect a failure investment opportunities. We are going to concentrate on regular consumer issues as much to live up to that vision. Newspapers love publicising bad news, and ours have had no difficulty feeding their readers with the worst of it on a as mortgage bonds as it is here that most locals are hurting. We’ll daily basis relentlessly.We read of corruption in the highest circles all the continue to cover home loans but, until circumstances change the time. Hardly a week passes without some new scandal dominating the economic landscape, our main concern will be the plight of those who media. The stories remain the same, only the faces change. The country are struggling to cope with increasing household indebtedness. A debt remains largely directionless. People are finding themselves in increasing monster is growing in our midst (numerous recent articles in the general debt, often caused by their own indiscretions and lack of foresight, but media have confirmed this) and only consumer education can prevent it just as often by the enticements of money-lenders who promote the becoming worse. Watch this space. short-term advantages of easy loans but who come back later to tie Enjoy this issue. them in knots and strangle them. We are, in this magazine, moving further away from our initial focus (mortgage indebtedness – the privilege of middle-class homeowners) John Gilchrist to other forms of indebtedness that have taken over in recent years 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.

T HE MO RTGAGE & CONSUMER CREDI T MAG AZ I NE DECEMB E R / J A N U A RY 2013/ 14

Itâ&#x20AC;&#x2122;s more than just a Bond

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>>> PREDICTING 2014

No mortgage fireworks in 2014 Consumers are waiting patiently for signs of a genuine economic recovery.

nother year has begun and among economists the question has been very much the same as it has been for the past four years – can we expect any major changes in the national economy, especially positive advances that might take us out of the depressed state it has been since it recovered partially after the 2008-2009 recession? As we have done in previous years, we approached a few leading roleplayers in the home loan industry and asked them for their views. Our participants looking into the crystal ball for 2014 are Jan Kleynhans (CEO FNB Asset Finance), John Loos (FNB Household and Property Sector Strategist), Carel Gronum (Head, ABSA Home Loans), and Kevin Penwarden (CEO, SA Home Loans). Our special thanks to each of you for your contributions and insights. We asked them for their predictions in three key areas.

Recovery and growth prospects for 2014 Our question here was very simple – are there any prospects

th e mo rtgage & c o nsumer credi t mag az i ne Decemb er/ J a n u a ry 2013/ 14

for an economic recovery during 2014 or must we brace ourselves for another year of minimal growth? The responses were fairly uniform – no fireworks are expected. Jan Kleynhans says that the gradual recovery experienced in the residential property sector may slow down this year. A number of negative factors are inhibiting progress – high debt levels among consumers, evidences of renewed job losses, and low GDP (Gross Domestic Product) growth are likely to retard any meaningful advances. One positive factor he mentions is the evidence of shortages of high quality stock on the market which will keep property prices buoyant. Generally, however, FNB believes that the market will be stable without any noteworthy growth in 2014. Kevin Penwarden also believes that real economic growth is likely to be minimal this year. His advice is, once again, that local consumers must tighten their belts. Any hoped-for recovery is likely to be bogged down by both local

>>>

PREDICTING 2014

Estate agents have gained the impression that the rate of improvements in consumer housing affordability appears to be slowing down. Any increases in bond applications expected?

Carel Groneum Head, ABSA Home Loans

and international circumstances, such as the reversal of foreign investment inflows. Our domestic economy, he adds, remains fragile when it should be driving growth and creating

Overall appetite for mortgage lending has increased significantly which should, in time, lead to greater flexibility in lending criteria and the willingness of lenders to accept a higher proportion of 100% loans supports this position.

exports. The weak rand is also a negative factor, caused by internal problems such as low labour productivity aggravated by strikes and excessive wage increase demands. Carel Gronum expects interest rates to remain unchanged until the third quarter of the year when a rate hike is expected to keep inflation under control. He expects the standard variable rate for home loans to be raised to 9% by the end of the year (it is presently 8.5%), and to be at 10% by the end of 2015. This has been a common prediction in recent years, yet no increases have resulted. Itâ&#x20AC;&#x2122;s good news for inflation but bad news for the economy. Rates have been kept relatively low for years purely to stimulate activity in a depressed economy. John Loos says that ongoing poor consumer confidence levels and weak economic growth factors have obliged us all not to expect too much this year. The general message is clear â&#x20AC;&#x201C; inhibiting factors will keep our growth prospects in check for the foreseeable future.

Our question here was whether there will possibly be a greater number of bond applications this year with a possible increased flexibility in lending criteria. Penwarden says there is reason here to be more optimistic. An increase in confidence has been noted from both buyers and mortgage lenders. Local banks are still concerned about future interest rate hikes and their funding costs, but many other fears have receded. The overall appetite

for mortgage lending has increased significantly which should, in time, lead to greater flexibility in lending criteria. The willingness of lenders to accept a higher proportion of 100% loans supports this position. We need, however, to retain the lessons learnt from the boom years (2004-2007), however. Borrowers must be required to present a solid profile of affordability and credit-worthiness. Gronum tempers future prospects, however, and suggests that growth in

Kevin Penwarden CEO, SA Home Loans

t h e m ort ga ge & con su m e r cr e d i t m a ga zi n e D e ce m b e r / J a n u a ry 2 0 1 3 / 1 4

>>> PREDICTING 2014 believe that there will be any substantial shocks in the market. Adversely, the continuing weakness of our currency (due mainly to an increasing current account deficit) may trigger increased inflation. Interest rate hikes may follow, dampening demand for property in the medium term. Loos comments that, in a recent FNB Estate Agent Survey, estate agents have gained the impression that the rate of improvements in consumer housing affordability appears to be slowing down. Buyer income levels are falling behind house price levels. Loos comments that the broad flattening-out in the reports of estate agents in this area point to a looming end to the perceptions of an improving affordability trend. Penwarden, however, says that following a prolonged period

Jan Kleynhans CEO FNB Asset Finance

mortgage lending will remain well within single-digit percentages this year. A number of factors will restrain growth – the prospects of economic growth remaining below 3%, employment growth to stay below 1%, stagnancy in real household disposable income, and low consumer confidence (currently lower than it was during the recession). Adverse credit records will catch up with growth prospects – consumer debt is presently higher than 75% of disposable income coupled with 48% of credit-active consumers affected by impaired records. ABSA does not expect any significant changes in banking lending criteria in the foreseeable future, though moderate growth in the home loan market is anticipated. Kleynhans agrees, saying that FNB likewise does not anticipate changing its lending appetite or its lending criteria in the foreseeable future.

of tightly restricted credit, our property market has been aided recently by more readily available finance, improving the free-flow of buying and selling which has resulted in house price growth starting to exceed inflation. General inflation, he believes, should not become a major threat as the general lack of growth in the economy should keep it within the government’s target range (below 6%) where it has been for some time. His fear is an exchange rate shock which could spike inflation resulting in forced interest rate hikes. The overall outlook for 2014 is obviously not optimistic. South African consumers wait patiently for signs of a genuine economic recovery, but their patience may have to be extended for some time to come. m

What about inflation and rising house prices? Our final question was whether our contributors could foresee any factors, such as renewed inflation and rising house prices, which could affect the property market this year. Gronum does not expect any interest-rate hike to have a major negative impact on the market, but does believe that this will be a sign that we’re in for a new cycle of rate increases which will impact on debt repayments and seriously affect the average consumer’s cash flow and general financial position. Loos, commenting on increasing house prices, points out that growth here has continued to accelerate and rose to 7.2% in November, yearon-year. He expects an average house price growth of 6.5% in 2014 with a mildly slowing rate next year as the expected interest rate increases begin to take effect. Kleynhans also does not

John Loos FNB Household and Property Sector Strategist

the mo rtgage & c onsumer credi t mag az i ne Decemb er / J a n u a ry 2013/ 14

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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.

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

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

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

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

>>> 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.

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

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.

THE MO RTGAGE & C ONSUMER CREDI T MAG AZ I NE DECEMB ER / J A N U A RY 2013/ 14

>>> 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 personâ&#x20AC;&#x2122;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 D E CE M B E R / J A N U A RY 20 1 3 / 1 4

>>> A GROWING PROBLEM

Consumer

debt watch Credit market reports and other statistical releases indicate that the burgeoning demand for credit throughout South Africa shows few signs of diminishing and suffocating whole sections of the economy.

he total value of credit-lending to local consumers increased by over 7% in the second quarter of 2013 and rose from R102.29 billion to R109.62 billion. On an annual basis credit-lending is still rising at close to 5% per annum. Commercial banks still account for 80% of all funds borrowed by consumers with no other lending source accounting for more than 6%. An analysis of the total gross indebtedness of consumers came out at almost R1,5 trillion.

The credit State of the Nations Most lenders are still ensuring that monies going out are

secured by various forms of assets. 75% of all lending remains secured, mostly by home loans and other mortgages which still account for more than half of all funds released to consumers. The rest goes on vehicle sales mainly but also on other forms of secured lending such as life assurance loans. The remaining 25% goes mainly to general credit facilities (12%) such as credit card advances and current overdrafts, and to unsecured credit (11.5%) mostly in the form of micro-lending and personal loans. The distribution appears to be normal and wellbalanced, but it is the actual level of consumer indebtedness that is causing increasing concern

amongst analysts. Increasing credit advances are not normal percentages rising with annual inflation, they reflect the actual growth in credit going out to homeowners and other consumers. The greatest increase has been in the field of unsecured lending while mortgage advances have actually decreased percentagewise over the same period. Are banks and other lenders being reckless and placing investorâ&#x20AC;&#x2122;s funds at increasing risks? As long as consumers continue to pay back their loans, all will be well, but if inflation should rise substantially with an increase in interest rates, lenders may have to brace themselves against

the mo rtgage & c onsumer credi t mag az i ne Decemb er / J a n u a ry 2013/ 14

inevitable defaults. Over the past five years interest rates have been constant and stable creating an artificial comfort zone for lenders as consumers do not feel the pinch of having to pay more for funds they have borrowed. But if monthly instalments should rise considerably to cover increasing interest debits, many less-informed consumers may chafe against having to pay more and more back for a fixed amount lent to them at some time back which is not increasing simultaneously.

What about the Credit Amendment Bill? The Minister of Trade and Industry, Rob Davies, has

>>> published a Policy Review Framework pursuant to the National Credit Act (promulgated in 2007) which supplements a draft amendment bill designed to curb reckless lending. This was the intention of the Act in the first place, but it is generally admitted that many financiers have paid it scant respect and have continued to lend funds recklessly without adequate credit checks or estimates of their borrowersâ&#x20AC;&#x2122; real ability to repay their debts. The bill particularly concentrates on consumer education and literacy and methods of assessing affordability. Nonetheless many economists and analysts doubt whether it

it happens. Worse still, cases of overlending have to be reported to the NCR (the Regulator) before they can be investigated. The Act has no mechanism allowing the NCR to take the initiative and to pursue reckless lenders with an open mandate (more like a search warrant) to uncover it and bring its perpetrators to book. Prosecuting individual cases will not stem the general tide. The new amendment bill has not addressed this problem and the status quo is likely to continue.

Increasing household indebtedness and its effects One of the side-effects of growing indebtedness is the effect it has on the economy

In just sixteen years ending in 2010 our local private domestic sectorâ&#x20AC;&#x2122;s thirst for credit grew from R230 billion to R2.1 trillion, an almost 900% increase! Depression of 1929, seems to have finally burst the bubble though, like global warming, its warning signs are not being seriously heeded in many quarters. As more and more consumers find themselves using their disposable incomes purely to pay off mushrooming debts, the ability to fund anything

Getting out of debt is becoming increasingly difficult for people. will have more than a marginal effect. Telling cash-strapped consumers that borrowing now may bankrupt them later is like telling smokers that smoking can shorten their lives. Neither pays much attention to the warnings. One of the problems with the NCA (National Credit Act) is that it is not designed to prevent reckless lending taking place, only to correct it when

One of the problems with the NCA (National Credit Act) is that it is not designed to prevent reckless lending taking place, only to correct it when it happens.

at large. Before the Second World War substantial loans payable over many years (if not decades) were rare commodities and were hard to come by. In the past seventy years, however, borrowing now only to repay later has become a standard feature of

A GROWING PROBLEM

other than daily necessities has substantially diminished. Restaurants, hotels, holiday resorts, cruises and other forms of recreational activity have receded considerably. Whole thriving sections of economies have suffered as consumers are forced to pay thousands monthly

introduced to prevent reckless lending upfront. New forms of relief, fair and effective, will be needed to assist all burdened consumers to manage their debts. Interest rates on unsecured loans may need to be forcibly reduced or capped to open channels for household indebtedness to be generally reduced. Incentive schemes to encourage people to save rather than to spend may also have to be introduced. Proactive measures are called for, not halfhearted responses to a growing problem. In just sixteen years ending in 2010 our local private domestic sectorâ&#x20AC;&#x2122;s thirst for credit grew from R230 billion to R2.1 trillion, an almost

Lenders may have to brace themselves against inevitable defaults. all world economies. In earlier years the logic behind it was that capital funding would pass from those who had it to those who needed it to advance their lifestyles, enterprises and wealth-creating investments. It boosted economies as ordinary consumers gained access to funds making home-ownership, motor vehicles, overseas holidays and the like come within range. For decades the economies of the world surged forward on the back of financial resources available to those who could not otherwise earn or generate them. The recent recession, the worst since the Great

into banks to cover their debts. And the bulk goes only towards paying off accruing interest with the capital debt hardly being dented each month. Getting out of debt is, for so many people, becoming increasingly difficult while others are finding their indebtedness unmanageable.

Is consumer indebtedness destined to keep increasing? Sooner or later credit problems will have to be more seriously addressed or the effects of growing household indebtedness will continue to suffocate whole sections of the economy. Measures will have to be

900% increase! The current swing from middle class secured loans to people who could afford them to general lending on an unsecured basis to countless ordinary consumers who will spend their private loans on consumables is a sign of a growing malady. Banks which offer substantial loans to borrowers, encouraging them to spend them on the overseas trips they have always wanted and other similar consumables, are only aggravating the problem. The time has come for both lenders and borrowers to reform their ways and begin reversing the trend towards an everincreasing debt-spiral. m

t h e m ort ga ge & con su m e r cr e d i t m a ga zi n e D e ce m b e r / J a n u a ry 20 1 3 / 1 4

>>> BORROWER EDUCATION: lOCAl pROpERTy pRICES

National and provincial

average house prices

SOUTH AFRICA Average Nominal House Prices (Middle Segment)

Average Nominal price

Nom. y/y% Change

751 430

+4.3

Medium (141-220m , ≤ R3,8mil)

1 083 783

+5.4

large (221-400m , ≤ R3,8mil)

1 655 691

+8.4

(3rd Quarter 2013)

Small (80-140m , ≤ R3,8mil) 2

Nom. y/y% Change

NORTH WEST Small National (80-400m

≤ R3,8mil)

1 172 113

+9.3

Medium large

LUXURY

5 132 340

(›R3,8 mil - R13,8 mil)

+7.3

All

561 310

-10.8

Small

927 930

+10.8

Medium

1 314 079

+15.6

large

947 807

+6.4

Nom. y/y% Change

FREE STATE

LIMPOPO PROVINCE

All

574 858

Nom. y/y% Change

-2.8

915 527

-9.8

1 247 108

+17.6

999 284

+4.7

Nom. y/y% Change

GAUTENG

Small

839 795

+2.5

Medium

890 211

+22.3

1 109 797

-4.4

large

1 684 725

+8.8

924 434

+4.8

All

1 219 138

+10.1

large All

NORTHERN CAPE Small

Nom. y/y% Change

569 085

-13.1

Medium

1 015 493

+35.5

large

1 572 901

+27.2

All

1 019 759

+13.6

WESTERN CAPE Small Medium

Small Medium

Nom. y/y% Change

791 837

+11.3

1 080 386

+6.9

MPUMALANGA

EASTERN CAPE

Nom. y/y% Change

869 780

+6.1

Small

583 369

-19.3

1 124 871

+2.8

Medium

990 121

+5.5

1 607 672

+10.6

965 381

+3.4

large

1 936 724

+9.6

large

All

1 305 152

+8.7

All

Nom. y/y% Change

Small

741 881

+12.8

Medium

964 135

-5.9

large

1 355 601

+12.4

All

1 015 916

+8.8

KWAZULU NATAL Small Medium

Nom. y/y% Change

653 648

+11.0

1 051 112

+12.7

large

1 530 461

+8.4

All

1 063 196

+12.7

>>> BORROWER EDUCATION: local property PRICES

A closer look

at South Africa’s

residential statistics The property market 2014 Nominal year-on-year house price growth in the middle segment of the market slowed down in the third quarter of 2013 from the second quarter, with lower price growth evident in all middle-segment categories. Although barely positive, lower nominal yearon-year price growth occurred in the category for affordable housing in the third quarter compared with the preceding quarter, whereas price growth in the luxury segment improved further in the third quarter.

Housing affordability As measured by the ratios of house prices and mortgage repayments to household disposable income, was relatively stable in the first half of 2013, remaining still favourable compared with a few years ago. Despite the low mortgage interest rate, many households’

ability to take advantage of the favourable trends in housing affordability continued to be affected by economic and household finance-related factors.

Price Growth In view of current trends in and prospects for the economy, household finances and property market-related factors in general, as well as recent developments with regard to house price growth, single-digit nominal price growth is forecast for 2013 and 2014. Based on the outlook for nominal price growth and headline consumer price inflation in the rest of the year and in 2014, moderate real house price inflation is projected over this period. The performance of and prospects for the residential property market will continue to be closely related to economic growth, employment and household income growth,

property running costs and living costs in general, interest rates, consumers’ credit-risk profiles, consumer confidence and banks’ risk appetite and lending criteria. These factors will impact the affordability of housing and mortgage finance and will be reflected in property demand and supply conditions, price trends, market activity, buying trends, transaction volumes and the demand for mortgage finance. In view of current trends in and prospects for the abovementioned factors, as well as recent developments with regard to house price growth, single-digit nominal price growth is forecast for 2013 and 2014. Based on the outlook for nominal price growth and headline consumer price inflation in the rest of the year and in 2014, moderate real house price inflation is projected over this period.

Against the background of current conditions in and the outlook for the economy, household finances and consumer confidence, growth in outstanding household mortgage balances, which was below 3% y/y in the first eight months of 2013, is forecast to remain well in single-digit territory up to year-end and in 2014. Residential building activity has picked up gradually during the course of 2013 and is expected to continue to steadily recover along with improved levels of building confidence registered in the first three quarters of the year. In view of a growing demand for housing, changing lifestyles and pressures on the affordability of housing, the focus of the past number of years on the supply of especially smaller-sized houses and the construction of higher-density flats and townhouses, is expected to continue. m

>>> 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.’

TOP OF MARKET

BOOM

RECOVERY

SLUMP

RECESSION BOTTOM OF MARKET

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?

• • • • •

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

(Jan ‘14)

8.5%

Repo Rate

(Jan ‘14)

5.0%

CPI

(Dec ’13)

5.4%

CPI ex OER

(Dec ’13)

5.5%

Mortgages (Base Rate)

(Jan ‘14)

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

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

>>> BORROW ER ED UCATION: H o m e L o a n r a t e s & t r e n d s

Overview Mortgage Agreements 1. Mortgages granted 1.1 There was an overall q-o-q increase of 14.69% in the rand value of mortgage agreements granted for the quarter ended September 2013 as indicated in Table 2.1 below. Mortgage agreements in categories “R351K-R700K” and “≥R700K” showed q-o-q growth of 16.87% and 14.93% respectively. On a y-o-y basis mortgage agreements increased by 20.02%. 1.2. For the quarter ended September 2013 the number of mortgage agreements concluded increased by 12.07% as indicated in Table 2.2.The majority of the mortgage agreements were granted in favour of larger sized credit agreements. On a y-o-y basis mortgage agreements increased by 7.16%.

2. Mortgages granted by level of income More than 85% of the number of agreements were concluded with individuals in the greater than R15K income category. This income category also accounted for 95.63% of the rand value of the mortgages granted during the quarter ended September 2013. The percentage share of share of income categories less than R10K continued to decline for both rand value and number of agreements as shown in Tables 2.3 and 2.4.

Mortgages granted – size of agreements

Agreements

2012-Q3 R000

R0-R50K R51K-R100K

2012-Q4 R000

2013-Q1 R000

2013-Q2 R000

2013-Q3 R000

2013-Q3% % Distribution

% Change (Q3/Q2)

% Change (Y/Y)

46,491

35,846

51,070

36,621

33,008

0.10%

-9.86%

-29.00%

197,401

180,499

185,678

179,555

174,358

0.51%

-2.89%

-11.67%

R101K-R150K

250,907

218,538

230,223

238,051

241,926

0.70%

1.63%

-3.58%

R151K-R350K

2,065,168

1,916,675

1,620,523

1,823,065

1,972,058

5.71%

8.17%

-4.51%

R351K-R700K

6,932,404

6,464,382

5,539,957

6,374,716

7,450,421

21.58%

16.87%

7.47%

≥R700K

19,272,021

19,787,523

17,412,282

21,447,209

24,650,164

71.40%

14.93%

27.91%

Total

28,764,393

28,603,463

25,039,734

30,099,218

34,521,936

100.00%

14.69%

20.02%

Mortgages granted – number of agreements by size

Agreements

2012-Q3

R0-R50K

2012-Q4

1,476

2013-Q1

1,025

2013-Q2

1,825

2013-Q3% % Distribution

2013-Q3

1,033

932

% Change (Q3/Q2)

% Change (Y/Y)

2.12%

-9.78%

-36.86%

R51K-R100K

2,381

2,201

2,260

2,172

2,106

4.79%

-3.04%

-11.55%

R101K-R150K

1,881

1,648

1,737

1,799

1,827

4.16%

1.56%

-2.87%

R151K-R350K

7,832

7,266

6,201

6,921

7,466

16.99%

7.87%

-4.67%

R351K-R700K

13,464

12,577

10,764

12,406

14,457

32.89%

16.53%

7.38%

≥R700K

13,985

14,134

12,116

14,889

17,167

39.06%

15.30%

22.75%

Total

41,019

38,851

34,903

39,220

43,955

100.00%

12.07%

7.16%

Mortgages granted – gross monthly income of individuals (number of agreements)

Level of income

2012-Q3

2012-Q4

2013-Q1

2013-Q2

2013-Q3

≤R10K

1,361

1,186

1,144

1,000

1,072

% share of credit granted

3.33%

3.07%

3.29%

2.56%

2.45%

R10.1K-R15K

4,360

3,791

3,354

3,523

3,738

% share of credit granted

10.67%

9.80%

9.65%

9.03%

8.55%

>R15K

35,127

33,717

30,262

34,488

38,928

% share of credit granted

85.99%

87.14%

87.06%

88.41%

89.00%

Total number of mortgages

40,848

38,694

34,760

39,011

43,738

Mortgages granted – gross monthly income of individuals (rand value)

Level of income

2012-Q3

≤R10K (R000)

2012-Q4

303,004

% share of credit granted R10.1K-R15K (R000) % share of credit granted >R15K (R000) % share of credit granted Total number of mortgages (R000)

2013-Q1

269,917

2013-Q2

210,541

2013-Q3

236,620

260,179

1.06%

0.95%

0.85%

0.80%

0.76%

1,277,787

1,208,509

981,329

1,146,680

1,233,152

4.48%

4.26%

3.95%

3.86%

3.61%

26,949,257

26,920,211

23,654,688

28,313,860

32,658,951

94.46%

94.79%

95.20%

95.34%

95.63%

28,530,048

28,398,638

24,846,558

29,697,161

34,152,282

NCR Consumer Credit Report Sept 2013

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

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 (Dec’13) Median US$ 197 100 CPI (Dec’13) 1.50% Av. 30yr fixed mortgage (Jan ‘14) 3.87% Av. 20yr fixed mortgage (Jan ‘14) 3.37%

UK House prices (Q4 2013) Av £174 444 CPI (Dec ’13) 2.0% Fixed rate mortgage 4 yrs 2.99% Standard variable rate mortgage 3.99%

CANADA House prices (Dec ‘13) Av. CAN$ CPI (Dec ‘13) Fixed rate mortgage 5yrs Variable rate mortgage 5yrs

390 034 0.92% 3.39% 2.55%

NEW ZEALAND House prices (Dec ‘13) Median NZ$ CPI (Dec ‘13) Fixed rate mortgage 5yrs Variable rate mortgage

427 000 1.6% 7.20% 5.84%

AUSTRALIA

Midwest

Northeast

South

West

House price (Dec ‘13 Median) US$

150 700

239 300

173 200

285 000

Annual change (y/y Dec ’12)

+7.00%

+ 3.60%

+8.90%

+16.0%

Lawrence Yun, NAR chief economist, said housing has experienced a healthy recovery over the past two years. “Existing-home sales have risen nearly 20 percent since 2011, with job growth, record low mortgage interest rates and a large pent-up demand driving the market,” he said. “We lost some momentum toward the end of 2013 from disappointing job growth and limited inventory, but we ended with a year that was close to normal given the size of our population.” The national median existing-home price for all of 2013 was $197,100, which is 11.5 percent above the 2012 median of $176,800, and was the strongest gain since 2005 when it rose 12.4 percent.

England

Wales

Scotland

House price (Q4/2013) Av. £

205 084

139 722

136 729

London 345 186

Annual change % (y/y’12)

+8.6%

+ 6.1%

+ 3.7%

+14.9%

The UK housing market followed the trajectory of the wider economy through 2013, gaining momentum as the year progressed. The average monthly increase in house prices rose from 0.4% in the first half of the year to 1% in the second half of 2013. Overall, prices increased by 8.4% in 2013, though they remain around 5% below the all-time highs recorded in late 2007. A large part of the pickup in the housing market can be attributed to further improvements in the labour market and the brighter economic outlook, which helped to bolster sentiment amongst potential buyers. Policy measures also played an important supporting role by helping to keep mortgage rates close to all-time lows and improving the availability of credit, especially for those with smaller deposits.

Vancouver

Calgary

House prices (Dec ‘13) Av. CAN$

785 574

439 389

Annual change % (y/y’12)

+14.9%

+ 4.7%

Regina 291 755 - 8.1%

Toronto

Victoria

520 398

477 792

+8.7%

-1.7%

The number of home sales processed through the MLS® Systems of Canadian real estate Boards and Associations and other co-operative listing systems was down 1.8 per cent on a month-over-month basis in December 2013, marking the third straight monthly decline. Activity now stands 5.2 per cent below the peak reached in September 2013. Sales were down on a month-over-month basis in about 60 per cent of all local markets in December, with declines in Calgary, Edmonton, and Greater Toronto more than offsetting gains in Greater Vancouver and the Fraser Valley, as well as a sizeable rebound from a quiet November in St. Catherines. National sales activity has softened in recent months and is expected in 2014 to remain down from levels reached last September

Auckland

Wellington

Waikato

Canterbury

House price (Dec ’13) Median NZ$

600 000

400 000

346 500

395 000

Annual change % (y/y’12)

+12.5%

+ 4.7%

- 8.1%

+8.7%

The national median house price rose a modest $2,000 (+0.5%), from $425,000 in November, to $427,000 in December to a new all time high. Compared to December 2012 the national median house price increased by $38,000 (+9.8%), with 10 regions recording an increase in the median price. 67% of the increase in the national median price compared to December last year occurred in Auckland and 15% occurred in Canterbury/Westland. Together these two regions accounted for 81% of the increase in the median price between December 2012 and December 2013.

House price (Oct ’13) Med. AUS$ Annual change % (y/y ’12)

Sydney

Melbourne

Brisbane

Adelaide

Perth

655 000

563 000

455 000

386 000

520 000

+8.5%

+5.1%

+2.80%

+9.90%

+14.0%

“Low interest rates and improved housing affordability have released much of the pent-up buyer demand built up over recent years, with rising prices reinstating the incentive to buy now rather than later,” ANZ analysts Paul Braddick and Dylan Eades said. “Population gains continue to outstrip new home House prices (Oct ‘13) Median. AUS$ 540 000 supply and an unprecedented shortage of housing will maintain upward pressure on prices, rents and building activity.” It was a year of two halves, with CPI (Dec ’13) 2.70% home values rising about 3 per cent in the first six months of the year, and by 6.6 per cent in the second-half of 2013. “Despite the strongest annual value Fixed rate mortgage 2yrs 5.94% growth since 2009, the rate of growth was not that startling given the low interest rate environment and the previous successive years in which home values Standard Variable Rate mortgage 6.00% fell,” RP Data’s senior research analyst Cameron Kusher said. Combined home values fell 0.4 per cent in 2012 and 3.8 per cent in the previous year. “Cumulatively, from peak to trough, capital city dwelling values were down 7.7 per cent prior to this current growth cycle,” Mr Kusher said. He added that growth in the property market was expected to remain varied across the capital cities, with further price gains dependent on a expected rise in the unemployment rate and the affordability of property in capital cities where prices have risen the most. It is also possible that regulatory bodies such as the Reserve Bank and the Australian Prudential Regulation Authority could impose macroprudential tools to cool down the housing market if it moves into what could be deemed as bubble territory.

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• 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: international prices, rates and ADVICE

Buying overseas property Overseas property as an investment If you want your property abroad as an investment, make sure you are thinking long term.You may be able to find bargains in countries where prices have fallen dramatically. These include Spain, where the housing market has taken a big hit and many people are trying to sell – although you must tread carefully with property in Spain thanks to problems with illegal building and ‘land-grab’ issues in some areas.You may also be able to find good deals in France and Portugal. However, property markets are now more uncertain, so it’s wiser to buy in the more established ones.

Letting your overseas property If you’re planning to let your property when you’re not using it, it’s important to bear this in mind when you’re hunting for your new holiday home. Make sure it’s in an easily accessible location with good local amenities and in an area popular with tourists.You should also investigate the competition – find out what the going rate is for rental on similar properties to get a realistic idea of how much you could make. Don’t forget to take into account the holiday season in the area – many tourist destinations virtually shut down when it comes to the end of the season. It can be a good idea to market your

property through a local estate agent but you will need to take its fees into account, especially if you want the agent to manage the property. Cheaper marketing options are dedicated holiday lettings websites. Word of mouth through family and friends is another good way to find potential rental income. But attracting business and managing the property yourself could be difficult, especially if you’re in the UK most of the time. You will also need to make sure the property is up to a certain standard and factor in cleaning costs and repair or replacement costs should anything get damaged by a careless tenant.

Rental income You must pay income tax on rent you receive.You can deduct some expenses from your rental income to reduce taxable profits, but only those that relate to your letting business (not to personal use).

Five steps to buying overseas property

Choose your estate agent carefully. Check the agent’s history and their fees upfront. Take the time to view overseas properties in person rather than getting obsessed with internetbased property hunting.

Be sceptical. Don’t get sucked in by claims of huge capital growth and rental yields when viewing a property abroad.

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

Before deciding whether it’s a good buy, factor in the likely costs of maintaining the place.

Weigh it all up. Think carefully about the pros and cons of different ways of buying the property, and shop around for the best deal on mortgages and currency. Remember that you’ll be liable for taxes.

Seek asset advice. Talk to your lawyer about making wills in both countries to govern what happens to the property when you die. Once you’ve found the right property abroad, hire a suitably qualified lawyer to protect your interests and negotiate a favourable contract, before handing over a deposit securely via a lawyer.

Do your homework. If you’re planning to emigrate, research your tax, pension and healthcare requirements as early as possible. If you are below retirement age, carefully consider your healthcare insurance cover.

Buying overseas property off-plan Buying off-plan (where the property has yet to be completed) was once seen as a way to make a quick profit. However, there is now more uncertainty about the likely value of the finished property, and some developers, especially in Bulgaria and Spain, have been unable to complete properties, leaving buyers high and dry.

Timeshare and other options If you can’t afford to buy your own property abroad, there are schemes that aim to offer more affordable alternatives, although you usually need cash to pay for them. But aggressive selling practices and schemes that haven’t delivered as promised, leaving consumers out of pocket, have given the industry a bad name. The main options are timeshare, fractional ownership and holiday clubs. With timeshare, you buy the right to spend a certain period, usually a week, each year at a particular resort or pool of accommodation for a number of years. With fractional ownership you also own a share in the property’s equity. Technically, this means you could make money when you sell your share if the value has increased. Holiday clubs sell you the right to discounted holidays, flights or accommodation for a number of years, but consumers have often found that the holidays available are no cheaper than they would be if you bought from elsewhere. Timeshare and fractional ownership are covered by the Timeshare Directive 1994. This gives you the right to obtain information before signing a contract and ensures you have a cooling-off period of at least 10 days during which firms can’t take any money from you. m

>>> Who got what wrong?

The

Consumer Protection Act and residential property sales Are ordinary sellers of residential homes now obliged to provide full disclosure certificates of all defects on their properties and can their buyers hold their agents accountable for undisclosed defects? Has the voetstoots clause become redundant?

esidential property buyers are being led to believe more and more that their interests in their sales are fully covered by the Consumer Protection Act and they are boldly challenging their sellers to conform to the provisions of the Act. They have been spurred on by certain sections of the media and releases by the Estate Agency Affairs Board which have both promoted the view that the Act covers all normal property sales.

Disclosure Certificates and other encumbrances The EAAB has sent a disclosure

form to all its registered agents, compelling them to use these in all property sales. In articles enclosed in its Agent magazine at the time the CPA was introduced, the EAAB strongly promoted the view that voetstoots clauses no longer had the relevance or effectiveness that they used to have and that all property buyers were now protected by the provisions of the Act. Coupled with this is the similar viewpoint that all residential property leases also fall within the ambit of the Act and that tenants are entitled to cancel their leases without offering any justification at any

time on twenty working days notice to their landlords. The vast majority of conveyancers, however, who are fully qualified property lawyers, believe the EAAB and all other roleplayers promoting the same line have got it horribly wrong. What the Board seems to have failed to realise is that, by prescribing to their agents that their disclosure certificate must be used in every sale, it is actually obliging every seller represented by an agent to do likewise. Irrespective of whether the Act covers normal sales or not, the Board has no authority, power or control over

th e mo rtgage & consumer credi t mag az i ne Decemb e r / J a n u a ry 2013/ 14

individual sellers and cannot force them to use its certificates.

Who exactly is bound by the CPAâ&#x20AC;&#x2122;s provisions? The definitions at the beginning of the Consumer Protection Act define a consumer as someone who deals with a supplier in the normal course of the supplierâ&#x20AC;&#x2122;s business. One has to do no more than apply the simplest principles of interpreting the English language to realise that this definition has two immediate implications. The consumer must be dealing with a supplier who provides goods

>>> for sale on an ongoing basis and that this must be done not just in the normal course of business, but in the course of the supplier’s business. This means that the transaction must have the essential characteristics of a normal business sale. It is not easy to draw the dividing line here, and the Act does not even remotely attempt to define its implications for property sales, but by applying certain basic principles it is not hard to see where the plumbline should be. One-

enterprise. Property developers, however, and owners of many properties who buy and sell on a regular basis for profit-making purposes as well as landlords who do likewise in letting out a series of homes, will fall within the Act as these can clearly be defined as enterprises of a business nature.

Distinguishing residential and business properties What is particularly important here is the well-defined distinction in legal practice

Who got what wrong?

Irrespective of whether the Act covers normal sales or not, the Board has no authority, power or control over individual sellers and cannot force them to use its certificates. invariably negotiating on the same level. The buyer has the means to purchase the seller’s asset. It’s a simple quid pro

Here is the well-defined distinction between residences and businesses. off sales of any residential property would not fall within the provisions of the Act or its supplier-consumer definitions. An elderly couple living in the same home for forty years, who finally decide to sell it so that they can move into a retirement home, obviously are not engaging in an ongoing business transaction! No definition of a business sale can possibly be applied to such a sale. But even people who invest in four or five homes which they intend to hold onto until retirement, selling them off then to acquire capital for retirement income, are also not engaging in a business

No Vat is payable on rentals accruing from the latter no matter how many an individual owner may be letting. VAT only applies to business properties.

between residences and businesses. Firstly, properties zoned for business purposes are rated on a higher scale than normal residences. The same applies when consent use is given to run a business from a residence – higher assessment rates will be imposed. Private property sales just do not have the same character as business

quo situation. Once the buyer takes transfer of the seller’s property, he substitutes himself as its new owner and assumes all the powers of ownership and ancillary rights which the previous owner enjoyed. There is no supplier-consumer disadvantage here. This is more like a sale where the buyer purchases the seller’s actual

business properties. Here it is quite clear that ownership of a residential property does not constitute a business enterprise. The VAT Act draws this distinction in other areas as well. If an individual person conducts a business from his private home, he will only be liable for VAT if he is using more than 50% of his property for this purpose. Otherwise, if he for example is only running his business on 40% of the property’s area, the property itself is still treated as a residential property. Once again residential properties are clearly

One-off residential property sales do not fall within the provisions of the Act. sales and many laws recognise this. There has to be something public about a venture for it to be identified as a business enterprise. Private sales between parties just will not fall within this range unless the seller markets his properties regularly on a public basis. The ordinary sale of a property also does not have a supplier-consumer factor. The CPA sees suppliers as conductors of business ventures which can victimise unwary consumers. The Act clearly treats the two as operating on different levels of influence. Consumers can be disadvantaged by suppliers who market and produce brand new products that are defective. An average property sale, however, is between two people who are

business rather than products which the seller is selling in the normal course of his business and from his business. The Act was not intended to cover situations where the buyer is in the same position as the seller and is taking over the seller’s product (thereby becoming a supplier himself) and is being placed in the same position the seller was in beforehand.

How our tax laws distinguish residences from businesses The Value-Added Tax Act clearly distinguishes business properties from residential properties. No Vat is payable on rentals accruing from the latter no matter how many an individual owner may be letting.VAT only applies to

excluded in such cases from any form of ‘business’ definition. When it comes to Capital Gains Tax, primary residences enjoy a R2 million abatement which is never applied to business properties. Our tax laws clearly do not regard ownership of a normal residence as in any way having a business character unless the owners buys and sells properties on an ongoing basis as a clearly-defined business enterprise. Hopefully, when our High Courts finally have to make a decision in cases like these, they will have the good sense to realise that normal property sales were never in their legislator’s minds when distinguishing and protecting consumers from businessoperating suppliers. m

t h e m ort ga ge & con su m e r cr e d i t m a ga zi n e D e ce m b e r / J a n u a ry 20 1 3 / 1 4

>>> 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.

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

2 3

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

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

>>> BORROWER EDUCATION: CONSUMER RIGHTS

how to protect them

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

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

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

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

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

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: 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.

1 2

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.

PLI

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.

L ITA P A

THE MO RTGAGE & C ONSUMER CREDI T MAG AZ I NE DECEMB ER / J A N U A RY 2013/ 14

ES AT R T

ER NT

U MO

C Standard variable rate You can choose to make the lender’s fluctuating mortgage rate apply to your loan. 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.

CA TIO

>>> BORROWER EDUCATION: BORROWING CHOICES

4 D

TIO RA

5 6

INSURANCE POLICIES

KI N

YM PA

IE LIT

CI FA

5 6 7

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.

T H E M ORT GA GE & CON SU M E R CR E D I T M A GA ZI N E D E CE M B E R / J A N U A RY 20 1 3 / 1 4

>>> FOOLISH THINKING

Borrowing when

retired Should you borrow against your home loan when you are already retired? When should you do this, how much should you borrow, and in what circumstances would you feel it necessary or advisable to do so?

any financial advisers would immediately say these questions are self-defeating. No one should even think of increasing their indebtedness when they are retired and have no form of created income. It’s like telling smokers to stop smoking after they have already developed diabetes or lung cancer. Does the question therefore virtually answer itself? Or may there be circumstances in which borrowing against a home loan might be recommended?

Why banks have no retirement lending policies There are few things more foolish that retired people could do than to borrow against their mortgages. The capital debt will only increase, accruing interest will have to be paid off, and the retired person’s capital base will be diminished. Borrowing against a capital investment or equity policy is discouraged for very much the same reasons as mortgage borrowing, but at least the effect is only to decrease the retired person’s capital base.

Mortgage borrowing multiplies a person’s debts, and these have to be paid off somehow and within a specified time period. This is why banks generally do not regard retired couples as targets for mortgage lending. In South Africa virtually all home loans have to be paid off within twenty years. Getting a home loan beyond the age of fifty years is highly unlikely locally on the grounds of age alone. The ageing borrower will be beyond retirement age before the debt is due to be paid off

the mo rtgage & c onsumer credi t mag az i ne Decemb er / J a n u a ry 2013/ 14

and may not be able to service it. In the exceptional cases where older people can get home loans the repayment period will invariably be reduced to around ten years and no flexible access will be allowed for the very reason that this will increase the loan’s outstanding debt well into retirement years. This is why local banks pay very little attention to retirement lending.

Why you should prepare for retirement There are a number of people

>>> around who can well afford to put off their retirements until they are no longer capable of doing a normal day’s work. Some folk work purposefully and profitably well into their eighties and even their nineties, but they are the exception. Most people have to give up normal working by the age of seventy five and many others are forcibly retired in their mid-sixties. Looking for sources to borrow money purely to keep going once your shelf-life has passed its expiry date is a problem few people should wish on themselves. Rather prepare for retirement well in advance. The sooner you take out retirement annuities and other forms of long-term savings, the better. People who borrow against their home loans well into retirement (very few have the capacity or facility to do so) are only increasing their indebtedness and monthly repayments (mainly to cover accruing interest). The longer they live, the more their financial availability becomes straitened. Without disposable income how can you possibly pay these increasing debts back? What happens when the access facility dries up completely and you have nothing left but a mountain of unmanageable debt? In almost all normal

Probably the only people who should ever think of mortgage accessing in their retirement years are those who don’t need it!

circumstances nobody should even think of borrowing against a home loan to service monthly living costs. It’s normally not possible to guess how long you will live and, if you’re still there when most of your contemporaries have gone on to other worlds, the chances are that you will be heavily dependent on family members and other external sources for your limited monthly expenses. It’s a general matter of principle that you should never even contemplate home loan borrowing as a means of sustainable income.

Reverse Mortgages – the US option American mortgage lenders sometime ago invented a form of home loan borrowing for those whose homes are bond-free but who desperately need a monthly income. It’s called the reverse mortgage and, no matter how much relief it may bring to stressed

FOOLISH THINKING

Looking for sources to borrow money purely to keep going once your shelf-life has passed its expiry date is a problem few people should wish on themselves. for increasing the access facility as the home’s market value increases, every reverse mortgage carries an expiry date. It’s the day when the bond has been accessed to its limits. From then on the ageing couple will no longer be able to borrow against their home loan or be able, in any way, to diminish the debt. The kind-hearted mortgagee will have effectively taken over the property as its real beneficial owner.You know there’s no such thing as a free lunch – well there are no free mortgages either! Reverse mortgages are quite

determined to live sparingly and access as little as possible each month. If the borrower is heavily indebted on his credit cards, it makes sense to take out funds from a low-interest bond to cover high-interest credit card indebtedness. The downside here, however, is that credit cards cannot later be used indiscriminately as an immediate cash resource whereas mortgage access facilities can. Probably the only people who should ever think of mortgage accessing in their retirement years are those who

Local banks pay very little attention to retirement lending. homeowners in their later years, it does live up to its name. It is a reverse mortgage – it reverses all the hard work that went into paying the original mortgage off in earlier years. Nonetheless it is structured so as not to burden the borrower with any increasing monthly debt repayments at any time. An access facility is granted against the security of the owner’s home. Let’s say it is $150 000 by way of example. No repayment of the mortgage, neither accruing interest nor capital indebtedness, is required. These simply continue to grow and accrue monthly as the homeowners borrow what they need to live from day-to-day. Once again, however, the relief is temporary and limited. Even if an allowance is made

easy to obtain if the home is unencumbered by any existing mortgage debt, simply because no repayment is required. Even the credit status of the borrower may not be an issue. But the end result will be the same: ‘look mama - no money, no home either!’

Is retirement mortgage lending ever advisable? Apart from the unlikelihood of acquiring a home loan in your later years, there can only be a few exceptional cases where mortgage lending can be advisable or justified. If there is simply no other way of surviving, accessing a home loan may be an irresistible option, but it must be a very last resort. Even then the borrower should be

don’t need it! If they have other forms of retirement income and can still afford to invest a bit or pay back short-term loans, home loan borrowing may well be justifiable. If they have the foresight to anticipate sudden increases in house prices, using other people’s money to finance purchases makes good sense. But this is only for those who have earned the right in their retirement years to live as most other people do in their thirties and forties. But for the rest of retired folk, thinking of accessing a mortgage loan account (especially on a monthly basis) should never be an option unless there are absolutely no others available. Oil and water don’t mix – and nor do retirement and general home loan borrowing. m

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>>> 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.

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

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

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

TH E Mo rtgage & c onsumer credi t MAGAZ INE De cemb er / J a n u a ry 2013/ 14

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

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.

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!

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.

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

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.

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.

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

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.

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.

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.

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.

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.

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.

>>> 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.

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

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.

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

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.

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.

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

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.

>>> 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. C

CY CMY

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

Indingliz / ncr 002

Are all credit scores the same?

>>> NOT A SMART THING TO DO

Skipping

a monthly

payment

Which is better – to skip a bond payment, car instalment or credit card repayment?

he obvious immediate answer is to say don’t miss any of them, least of all on the false assumption that your lender won’t miss or activate a single month’s nonpayment. Apart from putting yourself further into your creditor’s debt and exposing yourself to possible litigation, your credit record will also be adversely affected and you may not be able to access credit for some time to come. But what if you are so cash-strapped that you have no alternative but to skip a payment? It’s important

to know what the consequences will be in each case. A word about skipping first, however. It’s not as easy as it used to be. Mortgage repayments and motor car instalments are now paid by debit order which creditors demand of all but their wealthiest customers. The only way to skip a payment here is to fail to place sufficient funds in your account to meet a monthly commitment, but even here you don’t know which monthly instalment will be affected. If you have debit

orders for your vehicles and your home loan, not providing for the one (say a R6000 bond instalment) may result in the car accounts defaulting instead and a repossession order against you very quickly. The only way to dispose of a debit order completely is to close your bank account, but you’ll soon find out what will happen if you should try to replace it with a new one. No bank will give it to you. Only credit card payments can be skipped in the old way of just ignoring them and failing to pay in the required amount.

the mo rtgage & c onsumer credi t mag az i ne Decemb er / J a n u a ry 2013/ 14

Credit Cards – defaulting on unsecured lending Most people with credit cards use the available facility to enable them to pay for items easily without have to put up the required funds beforehand. Rather take out debit cards if you’re prone to increasing your capital debt monthly beyond your ability to repay it in full each month. If you skip a payment here, one thing will happen fairly quickly. Your account will be blocked and you will not be able to use your credit card for future

>>> purchases. Although credit card repayments are the easiest to miss, the consequences can be severe. The highest interest rates are applied to unsecured debts and the amount owing will escalate quickly. There is also no way of cancelling out an unmanageable debt by selling the secured asset. Credit card debts stick and grow steadily. A court action against you will result in other assets being attached, including your home if you have insufficient movable assets to cover the full debt outstanding. Unlike the other two debts (vehicle financing and home loans), you

Motor Vehicle Financing – Look Ma, no wheels! What if you skip a car instalment? Here the consequences are very different because the total debt was determined when the car was purchased and an asset serves as security for the creditor’s claim. Once again, however, the consequences can be swift and devastating.Vehicle financiers don’t need to go through the normal tedious process of issuing summonses and getting default judgments against you. They can pre-empt this by getting an immediate attachment order against your

NOT A SMART THING TO DO

Most people with credit cards use the available facility to enable them to pay for items easily without have to put up the required funds beforehand. to an immediate repossession even if your new buyer is not reneging on his commitments. If your vehicle is resold by your creditor, you may still be liable for any excess owing on it. Creditors are obliged to get

Vehicle financiers don’t need to go through the normal tedious process. cannot stop processes against you just by paying the monthly instalment due once a summons has been served on you.Your lender is entitled to recover the whole amount owing, in particular as no fixed instalment amounts determine the monthly repayments.Your creditor adjusts the monthly repayment each month according to the actual amount owing at the time.

Letting go of your vehicle to another party without your creditor’s knowledge will expose you to an immediate repossession even if your new buyer is not reneging on his commitments.

vehicle on the basis purely of a certificate stating the capital debt owing, and will repossess your vehicle before you’re even aware that an action is pending against you.Your mobility will disappear and getting to work each day will become that much harder. If you should lose your vehicle, don’t try getting another one through refinancing.Your adverse credit record will work against you. Here too, relatively high interest rates apply and your debt will escalate quickly. Cars deteriorate in value, unlike mortgaged properties which usually increase in value as time passes. The heaviest decline occurs immediately after purchase as your vehicle loses its out-of-the-box status. Selling a car will help to pay off your debt and perhaps clear the debt completely, but you may lose your 25% deposit in the process.You also cannot sell your car privately to a third party (or cede a financed lease on it) without your creditor’s prior written consent. Letting go of your vehicle to another party without your creditor’s knowledge will expose you

the best market-related prices they can, but if they can’t get a good price despite properly auctioning your vehicle, they can sell it for whatever they can get for it.

Mortgage Defaults – more time and breathing-space What if you should skip a home loan instalment? If you have to choose between the three, this is definitely the one to miss, but no one wants to play the devil’s advocate and recommend it.You will be exposing yourself to similar consequences (adverse credit records, foreclosures, etc). But you will at least have more time to recover and negotiate and the outstanding debt won’t escalate as quickly. Here your creditor is likely to allow you up to three months arrears before it will institute court proceedings against you. Plenty of time to negotiate and, if you approach your creditor, you will find it is far more likely to assist you in any way it can than in the case of a credit card or vehicle non-payment. Here you can sell your property without your lender’s

knowledge and consent, so you have time to get a good market-related price. The one downside here is that you are likely to have to pay agent’s commission to get your property sold – a whack of up to 8.5% off your selling price. Some lenders, however, even have their own resale programs to accommodate situations like these and they will assist you to market and resell your property. Here the accruing interest will remain at your agreed rate and this is usually around the current prime rate – way below vehicle and credit card rates. In this case, too, you cannot be quickly dispossessed of your home, unlike your motor vehicle which you can lose almost immediately. It could be a year before you are evicted. With motor vehicle financing and mortgage bonds you can stop all proceedings simply by paying off all arrear instalments due plus the creditor’s legal costs. The creditor may not force the recovery of the full debt owing once this is done. Asset-backed defaults are usually easier to manage than cash debts (such as credit card and other overdrafts) and home loan defaults give you the most breathing-space. If faced with an inevitable choice as to where to default, your home loan is the best option. But do not stand by idly – go and speak to your lender and negotiate your repayments in any way you can. m

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>>> BORROW ER 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

THE MO RTGAGE & C ONSUMER CREDI T MAG AZ I NE DECEMB ER / J A N U A RY 2013/ 14

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

RIGHT LEGAL PEOPLEHELP >>> ESTATE AGENT TALK: SPEAKING TO THE >>>

South Africa’s

largest

non-bank

mortgage lender Crispin Swainston Harrison Sales and Marketing Director

t amazes me that, 14 years after launch, so many – even some of those in the industry - think SA Home Loans is a bond originator. Although we’ve never gone out to specifically say what we are not, we spend an inordinate amount of money saying what we are i.e. SA’s largest non-bank mortgage lender.

application to all the lenders because you’ve used one of the larger bond originators, you’ll be wrong. You could well be denying your client a home loan and yourself a sales commission! Secondly, in the sales world, knowing your industry is a critical part of your competence. Having SA Home Loans as an option is

would not want to be advised of the SA Home Loans option if they knew this was a very competitive alternative to one of the traditional big 4 banks? Also, there’s something unique about us that sets us apart as an alternative, and that is that our loans aren’t assessed by a computer. We do it the oldfashioned, tried and tested way

Don’t deny your client a home loan and yourself a sales commission! Why is this an important fact to know? Well firstly, if you think you’ve submitted your

an increase in 25% on the number of lenders you might currently be dealing with. Who

where each loan is individually assessed by a credit analyst who considers the enormous number

of variables and nuances in each application. The result? We proudly grant loans which banks won’t do because simply put; their computers have got it wrong. We know we make better decisions because our arrears levels are lower than theirs!! If you are not already speaking to one of our consultants, please let me know. Speaking to someone directly at SA Home Loans is the only sure way of making sure your client’s loan is being considered by us. In fact even better; phone us first, then choose. m

t h e m ort ga ge & con su m e r cr e d i t m a ga zi n e D e ce m b e r / J a n u a ry 20 1 3 / 1 4

>>> BORROWER EDUCATION: PROPERTY FINANCIAL SKILLS

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.’

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.

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

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

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

Total return

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.

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.

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.

the mo rtgage & c onsumer credi t mag az i ne Decemb er / J a n u a ry 2013/ 14

Home Equity

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

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

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

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

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

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

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

>>> CONSUMER RELIEF

Credit Amnesty is coming for Consumers! T

he past few months have had consumers eagerly waiting to hear how their ‘bad’ credit records will disappear as a result of the DTI’s Removal of Adverse Information Project which has now been given the go-ahead by Cabinet. Before consumers get too excited at the prospect of more credit for Christmas shopping, it is vital that everyone understands that exactly which information will be removed and when this will happen, and this is yet to be finalised. The public comment process is still underway and it is likely that Christmas will come and go before the amnesty process is implemented. ‘We have found that many consumers, both via our call centre and our outreach programmes, are already asking questions about the proposed removal of adverse information from their profiles,’ says Credit Ombud Manie van Schalkwyk. ‘The removal of specific adverse information from a consumer’s credit profile, does not mean that the entire credit history of that consumer just goes away,’ he adds. There are some major misconceptions coming through from consumers about what the Credit Amnesty will mean to them:

MYTH My debt will be written off and I will no longer be liable for paying off their debt.

FACT

Just because the listing on the credit bureaux can no longer be seen, it does not mean that the actual debt also disappears. The Credit Amnesty will only remove credit information i.e. listings on the credit bureaux, not actual debt owed. In fact, credit providers may take legal action to recoup their money from non-paying consumers.

MYTH When a default listing is removed, there will be no other record that I was in arrears on my account.

FACT

Even though adverse listings will be removed through the ‘removal of adverse information process’, it does not imply that no one will have any knowledge of how you conducted your payments.Your credit provider will have a history of how you paid your account and they may decide not to grant you further credit or increase your limit if you did not conduct your payments well. ‘On the up side, those consumers who have conducted their accounts well can take

advantage of the fact that there will be a history of their good conduct. Having a good credit history will without doubt stand them in good stead when they try to access credit to buy a home, pay for their children’s education or even to secure employment,’ adds Van Schalkwyk.

MYTH It will be easier for me to get a loan.

FACT

You will still have to prove that you can afford the instalments on your loan – and without full credit information to guide them, credit providers may actually become stricter and even charge higher rates, because of the greater potential risk of bad debt. Consumers now have the opportunity to take ownership of both their debt and their credit profiles, and would be well advised to take these steps to repair or improve their own credit records, without having to wait for an amnesty to rescue them: • Get a free credit report from the credit bureaux (you can find all their contact details on www.creditombud.org.za) • You have the right to challenge any information you believe

THE MO RTGAGE & C ONSUMER CREDI T MAG AZ I NE DECEMB ER / J A N U A RY 2013/ 14

to be unfair or inaccurate – if you are not happy with the response of the credit bureau, you can escalate your query to the Credit Ombud. • If you cannot aﬀord to repay your creditors, draw up a strict budget, work out the maximum you can afford, and then negotiate with your credit providers to pay your debts. • Pay at least the minimum due as agreed with your credit provider • Always pay your accounts on or before the due date • Make sure that you close any accounts you are no longer using (the number of accounts you have open may affect your credit score) • Reduce limits on credit cards if you do not use them or need them Consumers can contact the office of the Credit Ombud for free assistance on matters relating to incorrect or unfair listings on the credit bureau or any problems that they may experience with credit providers, such as overcharging or garnishee orders. The Credit Ombud office can be contacted on 0861 66 28 37 or visit their website on www.creditombud.org.za.

>>> BORROWER EDUCATION: knowledge

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

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.

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

â&#x20AC;&#x2DC;Switchingâ&#x20AC;&#x2122; 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

t h e m ort ga ge & con su m e r cr e d i t m a ga zi n e D e ce m b e r / j a n u a ry 20 1 3 / 1 4

>>> 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

BE INFORMED BEFORE YOU BUILD OR BUY YOUR HOUSE

Telephone number: (011) 645 6700 Fax: (011) 645 6800 w: www.banking.org.za e: webmaster@banking.org.za

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

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

THE MO RTGAGE & C ONSUMER CREDI T MAG AZ I NE DECEMB ER / J A N U A RY 2013/ 14

The NDMA

Going Places!

The year 2013 heralded a challenging but exciting new beginning for the NDMA. After    5 years as an implementation agency for the credit industry, the NDMA looks forward    to  its  evolution  into  an  independent,  non‐profit,  consumer  empowerment  focused    organisation. We look forward to forging new relationships as we reposition ourselves    to make an even greater impact to the credit market.

Our new services include:    National  Responsible  Credit  Helpline:  Free  access  to  information  and  advice  on    responsible credit granting and consumption;     Financial  Hardship  Solution  Services:  Providing  transparent  and  tailored  informal  and    formal solutions to consumers experiencing payment difficulties;    Partnered Consumer Education Initiatives: Working with corporates, government, the  media and other NGOs to implement impactful  consumer education projects; and  Research  and  Advocacy:  Utilising  our  casework  and  targeted  research  to  inform  and  influence policy and practice.               To find out more about our new services call us today!!

NRC Helpline: 086 111 6362  Email: info@ndma.org.za

There were 12 open houses, 21 private viewings over 2 years before we found our 1st home. Made just 1 call for our bond. Shaun and Candice Naidoo - Tongaat We know that purchasing your first home can be a daunting experience. At SA Home Loans, we make sure that financing it is a simple, quick and happy experience. We specialise in home loans and our consultants will work with you to take away the hassle and guide you through the process. So whether you are thinking of buying your first home â&#x20AC;&#x201C; or considering switching your current bond â&#x20AC;&#x201C; make just one call to get the home loan you need.

THB/37324

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.