Deposits Still Key for Prospective Property Owners in Bond Application Process
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Although 100% home loans are being approved by banks in select cases, potential property owners are advised to save for mortgage deposits, due to the numerous economic benefits for prospective home owners in the long-term.
This is according to Kevin Mountjoy, National Sales Manager at ooba, South Africa’s leading bond originator, who says that on average 36.5% of applications for 100% bonds were granted by the banks during March 2011. “This is in comparison to the 48.33% of bonds that were granted with a 10 - 20% deposit during the same period.”
Mountjoy says that deposits offer both long and short-term benefits for potential home buyers. “Although the current property cycle is seen as a buyer’s market with many good investment opportunities for potential home owners, the current economic climate has caused financial institutions to be risk averse with stringent credit criteria and lending policies. It is therefore more difficult for consumers to secure finance in this environment.”
He says that banks often look favourably at buyers with a deposit and will be more open to negotiate a competitive interest rate on a home loan, as a result of the reduced risk to the bank. “Besides improving your chances of getting your home loan approved, a bigger deposit could result in a more favourable bond rate that will save you in interest over the term of the loan. As a home loan is paid back over a long period, generally between 20 and 25 years, even a small deduction in the interest rate on your bond, can save you thousands of Rands in interest payments over time."
He says that having a deposit available will also improve the buyer’s chance of securing the purchase and speeding the transaction up. “Properties on the market are currently taking longer to sell. A deposit will strengthen the buyer’s negotiating power with the seller because of the improved chance of securing finance.
“Some sellers are also more willing to accept an offer if the buyer has a deposit, as there is a higher likelihood that they will complete the sale.”
He says that consumers looking to purchase property in the future should be saving towards deposits by putting a certain amount away each month. “First time buyers are encouraged to start saving for a deposit as early in their working careers as possible. As time goes by, interest will accumulate and assist towards securing home loan finance. It is recommended that applicants should try and secure at least a 10% deposit towards the purchase of a property, but banks will however look at any deposit from 5% up as favourable.”
Mountjoy says that consumers that don’t have cash or immediate access to funds can investigate alternative sources such as personal loans or deposit guarantees - an insurance policy specifically designed to assist potential home buyers to secure a deposit.