Buying a property

Currently in South Africa we are experiencing a depressed market in property.  Things have drastically changed in the past year or so, from the property market moving from a sellers' paradise to a buyers' playground, but South Africa has undergone some changes, not only affected by the global economic downturn, inflation pressures, interest-rat hikes, high fuel process and the effects of the National Credit Act.

The banks are hugely risk adverse and have changed their lending criteria be adjusting their loan to value ratios (LTV) allowed on bonds.  This means that 100% or 108% bonds (including costs) are now a thing of the past.  The banks are now requiring deposits with every loan that can range from 10% all the way to 30%.  Vacant land will not be financed without a 30% deposit.  In many "offer-to-purchase" agreements presented, sellers are therefore insisting on deposits of such nature.  This type of deposit is not the easiest thing to get hold of, especially in this economic climate where household debt is sitting at its highest in a long time at 77% of total income.  A great opportunity for cash investors to jump into the market.

 Banks also take a much closer look at your credit record when considering your application for a bond.  After considering affordability, previously you were only declined if you had a judgement or default against your name.  Currently, if your credit behaviour is poor, meaning you may have just skipped a payment on a clothing account or credit card, you could be declined a loan.  Further to this, if you have skipped payments the banks require a clean record for a period of six months before you will be eligible for a loan.

 As you have realised, credit is more expensive with the higher interest rates and when banks are determining an amount to lend, they will generally look at 30% of your gross income as an instalment to calculate your loan amount.  This is provided you monthly expenses are not too high.