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Monday Feb 20, 2012

More 100% bonds granted by banks

A surprising number of home loans are being approved at 100 percent of the property price, according to the latest statistics from mortgage originator Betterbond, but this does not necessarily reveal a slackening of credit qualification criteria on the part of lenders.

These figures show that although most home loan applicants are still required to have a deposit of between 10 percent and 40 percent, depending on the type of property they want to buy, almost one in every five (18 percent) of the loan applications processed by Betterbond is now being approved for a 100 percent loan.

In addition to this, says Betterbond chief executive Rudi Botha, 13.5 percent of applicants are obtaining loans for up to 104 percent of the property's value through the special first-time buyers' packages being offered by some banks on affordable houses.

"This means that more people can get a foothold on the property market ladder at a time when interest rates and prices are low. In the case of first- time buyers, the loans sometimes even include transfer and bond registration costs that would otherwise have to be paid in cash.

"And we should not forget that many people who are buying through the banks' assisted sales programmes for financially distressed homeowners are also able to access 100 percent bonds as well as a 50 percent reduction in transfer costs."

However, he says, what is most significant about the increase in the number of 100 percent loans is that it indicates an increase in the number of potential borrowers with sound credit records.

"The banks are not reluctant to grant 100 percent bonds, but they do have to impose strict conditions and follow stringent guidelines in terms of the National Credit Act. The fact that more homebuyers are able to access 100 percent finance is a good indication that the financial position of households is steadily improving as people pay down their debts and get their finances under control."

Botha does caution, though, that there are seldom any rate concessions on 100 percent loans, whereas borrowers who are able to pay a deposit of 10 percent or more may well be able to negotiate lower interest rates, especially if they have good credit histories and apply through an originator.

"There are also other advantages to paying a deposit, including interest rate savings over the life of the loan and protection against interest rate increases and negative equity, so overall we do believe it is a better course of action for potential buyers to save for deposits before buying."

Weekend Argus (Saturday Edition)


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