Bond Approvals Rising As Banks Relax Their Criteria

While the recession might still be fresh in the minds of some consumers, it appears that more people are looking to enter the property market.  The good news for prospective buyers is that banks have relaxed slightly their lending criteria and bond approval rates have increased.

Market segments such as the first-time buyers and emerging buyers are beginning to play a more active role in the residential property market.  Adrian Goslett, CEO of RE/MAX of Southern Africa, said that in the boom years, as many as 80% of all home-loan applications were granted.  At the moment, the bond approval rate is about 50%.  However, numbers are gradually improving. 

The increased number of approvals since the recession period is due to more buyers showing affordability and property pricing coming down to more realistic levels.  Various house price indices have reflected this end. 

Mortgage originator BetterBond recently noted that the year-on-year volume bond transactions that they processed during February 2012 was 63% higher than during the same period in 2011.  Although accessibility to finance is more readily available to buyers, Goslett pointed out a few things that would-be homeowners can do to ensure they are approved for finance.

Tips for Finance Affordability
Affordability is an important element of the bond approval process.  A buyer's affordability is determined by using a simple calculation using the applicant's gross income, net income and fixed monthly expenses.  All these factors will be taken into consideration to gain some insight into the buyer's monthly disposable income.  According to the South African credit legislation, which governs the practice of mortgage lending, a financial institution may not grant a bond if the monthly repayments are more than one-third of the applicants monthly net income.  Banks generally use a repayment to income ratio of 39%, as well as the available disposable income to work out what amount the applicant will qualify for.  The more disposable income, the more likely the bond will be approved.

Have a Deposit
While it is possible to get a 100% home loan, the standard requirement is for the applicant to have a minimum of a 10% deposit of the asking price of the home, and in some cases a deposit of up to 30% is required.  The lower the percentage of the price that is required to be financed, the more likely the bond will be approved.

Good Credit Rating
Before an applicant is considered, a lender will run credit checks on them to see whether there are any judgements or payment defaults against their name.  Keeping a clean credit record and managing credit accounts well will better the buyer's chances of approval.

A Steady Income
Generally, banks require an applicant to have proof of a consistent income over the past three years.  Buyers who have a good credit rating and show a stable source of income will be looked upon more favourably.

Self Employment 
Many people aspire to become entrepreneurs and own a business.  Despite the earning potential, business owners are self-employed and regarded as a higher risk, and, in compliance with the National Credit Act, lenders are more careful when giving loans to people in these positions.