By Ashleigh Brown, journalist, Justmoney
Few South Africans save, so climbing the property ladder is becoming increasingly difficult. For this reason, many people are excluded from purchasing property, especially first-time buyers.
“With the average bond being issued amounting to R 950 000, you would need to earn a total gross income of around R 30, 000 (based on a 20 years bond at 9.25%). There are many South Africans who do not earn this amount, however, with joint applications they may find qualification achievable,” said Craig Chinnappen, a bond consultant at Bond Busters.
“A lot [of first-time buyers] ask parents or financial helpers for help when buying a house. We have seen this quite often, for instance, where a parent takes their pension and gives that to the child and they then use that for the deposit for the home loan. I think that it turns into a very difficult family dynamic, but for the helper, they do not earn interest on that money, and they risk that money and do not know what the terms are to get it back, or what the formal arrangement is,” said Ewald Kellerman, head of customer interaction at Absa.
Carel Grönum, head of Absa Home Loans said, “Banks usually request a 10% deposit before a home loan is granted. Let’s say you apply for R500, 000 home finance, an amount of about R50, 000 will be required as deposit. If you haven’t saved for your deposit, laying down this amount of money is near impossible for most people.”
To solve the problem of being able to afford a deposit, Absa Home Loans has developed the Family Springboard home loan. It enables buyers, who meet Absa’s credit criteria – through affordability assessment - and qualify for a home loan, to buy a property with the help of a family member or friend who holds an Absa Fixed Deposit account. With permission from the helper, 10% of the property purchase price will be ceded to Absa as collateral.
Therefore, the helper essentially deposits 10% of the purchase price into an Absa Fixed Deposit account, and account would pay interest at the normal rate. Thus the first-time buyer would qualify for a higher percentage loan, through the helper’s contribution.
The amount of interest earned on the 10% depends on the fixed deposit and the amount. "Fixed deposits for longer than 19 months (a year and a half) is quoted on the site
as 4.67% - 7.35%. This figure is updated regularly, and would depend on the exact amount and length of time," said Kellerman.
“A very notable feature of Family Springboard is that only the buyer has full rights to the property. The helper, whose funds are held as collateral, does not have rights over the property nor is the helper liable for the full loan amount. The refundable deposit is held as collateral for a period of about 48 months (three years) before it is paid back to the helper. In this period, interest will be accrued and this puts the helper in an even stronger financial position,” said Grönum.
If the helper does want to get their money back before the three years are up, they can apply to do so. "In this instance, we may reassess the borrower and revalue the property in order to ensure that there is sufficient equity available in the property. Our aim is to get to a situation where 10% of the value is either secured or paid off. This means that if the property value grows faster, or the loan is repaid faster, than expected, the fixed deposit of the helper may be released much earlier," said Kellerman.
Furthermore, with the Absa Family Springboard, there is a 50% reduction in the initiation fee, and Absa will also cover the bond registration cost to the value of R4, 200.
There are also other lenders who do joint home loans, but normally both parties – the buyers and the helper – own the property and are liable for payments and fines. One such lender is Capitec which recently partnered with SA home loans to bring the “Capitec simplicity approach” to home loans.
To apply with Capitec, clients will need to be between 16 and 60 years old, and must not be under any debt counselling. After the client has applied at one of the Capitec branches, SA Home Loans will be in contact within a few days.
Thereafter, the client will need:
• A copy of signed offer to purchase.
• ID document (for joint home loans, both applicants’ ID documents).
• Copy of marriage certificate and/or antenuptial contract.
• Three months’ salary slips.
• Three month bank statement(s).
Home loan applicants don’t have to bank with Capitec to be able to apply for a home loan with the bank.
A lot of potential property buyers will first go online to see what is available before contacting an estate agent or physically visiting the property.
Searching for properties online is becoming increasing easier with many different property apps, such as Property24, Ananzi, or even looking on Gumtree.
Absa has also brought out a property app, called Homeowners App. The app allows prospective home buyers to conduct property searches, rate properties, calculate home loan repayment costs, moving costs and transfer duties.
“According to the Mobility 2014 research study, the use of apps on smartphones has shot up from 24% in mid-2012 to 43% in late 2013. In our sector, the app has become the single most significant tool driving real estate sales in South Africa. We view our Homeowner App as a great opportunity to make the lives of our customers easier as we strive to become the 'Go-To' bank and the destination of choice for all prospective home buyers,” said Grönum.
"The Absa Homeowner App was an excellent opportunity for both businesses to work together on a tool that will support Absa’s customers through the home buying process. Combining financial tools with mobile property search is yet another way that digital technology is making buying a new home more convenient for consumers. We believe this integrated App will add great value to consumers and we’re excited to be partnering with Absa on this exciting initiative,” said JP Farinha, CEO of Property24.
Grönum advises first time home buyers to consider the following before applying for a Family Springboard home loan, or any home loan in general:
• Shop around: Once you know what amount lenders are likely to grant you, start shopping around for the best deal.
• Determine the interest rate: It’s important to know at which interest rate the money will be loaned to you - this will affect your monthly repayments.
• Clear your debt: Try clearing your debt such as clothing accounts to ensure there’s extra cash at the end of the month. This will also reflect well on your credit report, which banks scrutinise before giving you a home loan.
• Spend extra cash wisely: If you have a little extra cash at the end of the month, put this towards the home loan repayment, thereby reducing the repayment period and the overall interest that you pay during the life of the loan.
For more information on different type of joint home loans, and commentators opinions, click here.