Publications
Partners
Shutterstock [http://www.shutterstock.com]
Cape Town - Bond approval rates have slipped to 12% below pre-recession levels due to property prices increasing faster than banks are confident with.
This essential step, especially for first-time buyers, has been made more complicated by an increased variation in the market value of a property and the valuations made by lenders – largely made up of SA’s major banks.
All properties still undergo a home-valuation from the lender, though apartments and townhouses are increasingly being valued without a physical visit due to the information that the valuer already has on hand about the complex or building, said Western Cape sales manager for mortgage originator ooba, Marius Crook.
The problem arises if, following a home inspection, a lender doesn’t think that the property is worth the sale amount, leading them to reject the loan application even if the buyer qualifies for the bond.
According to the latest stats from ooba, 65.5% of all bonds submitted during April 2013 were approved, down 2% from last year and 12% from the highs of 2005-2006.
This, in effect, muffles any potential growth by stymieing the riskiest portion of the market, the entirety of which is worth around R5 trillion.
The reason this problem is rearing its head more frequently of late is due to the economic situation South Africa currently finds itself in, explained chairperson of Lew Geffen Sotheby’s International Realty, Lew Geffen.
“Having emerged from the recession, markets have very quickly changed from having a surplus of supply to now having a shortage of stock in the face of huge demand”.
This inevitably drives prices up, he said, as people are generally being forced to pay a premium to overcome the dearth of properties on the market.
This is particularly evident in areas of high demand where prices are increasing even faster than the market average, which a recent Absa report puts at 11.9% for houses nationwide.
The disconnect, said Crook, is that banks are building up confidence more slowly than the market itself, leading them to be much more cautious in their valuations as they seek to minimise the risk of their liabilities.
“It’s not a problem that should be around for too long, given South Africa’s economic prospects, but it can throw a relatively large spanner in the works of a potential deal,” said Geffen.
Should the loan be rejected, there are three possible outcomes.
The easiest option is for the buyer to come up with the difference in cash, though this is obviously very difficult for first time buyers and is completely dependent on how big the difference is between the banks valuation and the requested loan.
The next option is for the seller to drop the price to the bank’s valuation. Again, this depends on the amount, but is a very unattractive prospect for all but the most desperate sellers.
Finally, the worst case scenario is that the deal falls through and the property has to be remarketed, but sellers need to bear in mind that the next potential buyers will probably face the same dilemma.
Geffen said further complication arises in that there are notable variations between the banks themselves, with some being much more conservative than others.
This muddies the waters for the buyer and seller as well as the broker when choosing from multiple loan offers.
“As bank confidence inevitably grows, this problem should become less and less frequent but will, for now, still provide the occasional hicough in areas that are experiencing particularly high growth,” Geffen said.
- Fin24
Add your voice to our Property Issue:
* Write a guest post
* Share a personal story
* Ask the experts
This essential step, especially for first-time buyers, has been made more complicated by an increased variation in the market value of a property and the valuations made by lenders – largely made up of SA’s major banks.
All properties still undergo a home-valuation from the lender, though apartments and townhouses are increasingly being valued without a physical visit due to the information that the valuer already has on hand about the complex or building, said Western Cape sales manager for mortgage originator ooba, Marius Crook.
The problem arises if, following a home inspection, a lender doesn’t think that the property is worth the sale amount, leading them to reject the loan application even if the buyer qualifies for the bond.
According to the latest stats from ooba, 65.5% of all bonds submitted during April 2013 were approved, down 2% from last year and 12% from the highs of 2005-2006.
This, in effect, muffles any potential growth by stymieing the riskiest portion of the market, the entirety of which is worth around R5 trillion.
The reason this problem is rearing its head more frequently of late is due to the economic situation South Africa currently finds itself in, explained chairperson of Lew Geffen Sotheby’s International Realty, Lew Geffen.
“Having emerged from the recession, markets have very quickly changed from having a surplus of supply to now having a shortage of stock in the face of huge demand”.
This inevitably drives prices up, he said, as people are generally being forced to pay a premium to overcome the dearth of properties on the market.
This is particularly evident in areas of high demand where prices are increasing even faster than the market average, which a recent Absa report puts at 11.9% for houses nationwide.
The disconnect, said Crook, is that banks are building up confidence more slowly than the market itself, leading them to be much more cautious in their valuations as they seek to minimise the risk of their liabilities.
“It’s not a problem that should be around for too long, given South Africa’s economic prospects, but it can throw a relatively large spanner in the works of a potential deal,” said Geffen.
Should the loan be rejected, there are three possible outcomes.
The easiest option is for the buyer to come up with the difference in cash, though this is obviously very difficult for first time buyers and is completely dependent on how big the difference is between the banks valuation and the requested loan.
The next option is for the seller to drop the price to the bank’s valuation. Again, this depends on the amount, but is a very unattractive prospect for all but the most desperate sellers.
Finally, the worst case scenario is that the deal falls through and the property has to be remarketed, but sellers need to bear in mind that the next potential buyers will probably face the same dilemma.
Geffen said further complication arises in that there are notable variations between the banks themselves, with some being much more conservative than others.
This muddies the waters for the buyer and seller as well as the broker when choosing from multiple loan offers.
“As bank confidence inevitably grows, this problem should become less and less frequent but will, for now, still provide the occasional hicough in areas that are experiencing particularly high growth,” Geffen said.
- Fin24
Add your voice to our Property Issue:
* Write a guest post
* Share a personal story
* Ask the experts
