Property lessons from a home loan heavyweight

Buyers, sellers, estate agents could do more to clinch deals.

These days much of the blame for tough market conditions being experienced in the residential property sector is being place on banks.

Critics reason that banks have raised deposit requirements and discounts to the prime rate of interest for buyers, offsetting any potential benefits from the South African Reserve Bank rapidly lowering the guiding repo rate since December. It's become common knowledge that most home loan applications are rejected.

FNB's chief executive of home loans, Jan Kleynhans, this week raised his head above the parapet to dispel what he believes are some unfair criticisms that have developed around the granting of finance for property deals. And, he gave some pointers as to what buyers, sellers and estate agents need to do to improve their prospects of finalising deals.

In an article published on Realestateweb about FNB's home loan policy, Kleynhans writes that property sales remain poor and prices continue to slide because of some "deep-seated misconceptions".

For starters, he reckons many sellers are still unrealistic about market conditions, pricing as though their assets will go up in a similar way they did 3-4 years ago, hence at least 80% of properties are sold at less than asking price. Buyers, with thousands of options available, are spoilt for choice.

His message: price your home to sell - which is roughly the price you would have got two years ago - or keep it off the market for now.

The property price trend is central to bank decisions. It expects prices to fall further and is factoring this view into decisions about the extent to which it will grant loans on specific properties. It is examining a property's offer price and general valuation carefully on every deal, it seems.

When prices start rising again, banks will be more enthusiastic. Unfortunately the short-term price picture remains bleak. Standard Bank, Absa and FNB don't see much improvement until later in 2010, thanks to a poorly-performing economy.

Property prices are fuelled to a large extent by consumer confidence, which is low now because we are all worrying about job security and curbed income growth. Until South Africa's economic growth starts improving and we start creating jobs rather than shedding them, you can expect the tough times to continue.

So, what if you want to buy property now because you want your own home or you want to take advantage of weak market conditions to snap up a bargain?

Contrary to some opinions, FNB - and by implication other banks - doesn't have a blanket if-in-doubt-turn-them-away approach. If you examine its policy, you will see what will make you eligible for mortgage finance.

As you might expect, it is not as easy to score bank credit as it was in the pre-National Credit Act days when banks were falling over themselves to grow market share. But, if you want to own a property it can still be done.

Some pointers:

  • Your personal finances must be in order, with all loan repayments up-to-date;
  • You must have a deposit of at least 10% and preferably more to give the bank some comfort that you have some skin in the game and can cover the short-fall if the price drops in the shorter term and the house needs to be sold in a hurry. (Kleynhans emphasises that the latter is very common in the early years of home-ownership.);
  • You must choose a great property: a good home in the best-possible area. The underlying asset must represent "sound value" for the bank. As a buyer, snapping up a property for quite a bit less than the market value suggests, would give the bank great comfort - so bargain hard; and
  • If you are buying sectional title, pay close heed to what has been going on behind-the-scenes. At least one bank wants to see some sound body corporate financial statements before putting money into a property.

Of course, this is what we should have been doing all along. For a few years, though, a window of opportunity opened up for anyone who wanted credit, few questions asked and for no deposit.

Article by: Jackie Cameron -