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Mortgage outlook and funding markets

The mortgage market past and present

To understand where we are going we need to understand where we have been – particularly in the past 10 years or so. The Global Financial Crisis (GFC) had a profound impact on our markets: up to that point, much of the growth in lending had been funded by wholesale funding and securitisation. T

hat stopped dead in its tracks on one day – August 9th 2007

We shrank from well over 100 active lenders to only six lending anything of note. The number of mortgage intermediaries halved and gross mortgage lending fell from £356bn in 2007 to about £134bn in 2010.

Lenders were all focused on survival and maintaining liquidity rather than growing their share of the mortgage market.

More than 10 years on, what does it look like now?  Gross new lending is running at about £65bn a quarter, still some 25% below pre-crisis levels, with annual net lending at £45bn for owner occupied and about £6.5bn for buy-to-let.

We have total outstanding mortgages of £1.4tn, up from £1.2tn at the end of 2007. So, to be clear, the growth in mortgage balances outstanding over that 12 year period is nothing more than the effect of inflation over time.

Lending levels certainly haven’t grown in line with house prices, though the drivers aren’t entirely the same. Following the recession in 2008, average wages fell almost consistently in real terms until mid-2014. From 2014 to 2016, inflation was low and wages increased, though they’re still not back to their pre-recession levels. Now, inflation has caught up again, and real wages are levelling off.

Funding today

An overview of funding tells us that a slew of Bank of England schemes have been provided which have now mostly ceased and are in run-off. There has been a resurgence of retail funding and that has both good and bad aspects.

Looking at wholesale funding, the market had been recovering well and increasing numbers of Residential Mortgage Backed Securities (RMBS) issues had been seen although in truth it has been smaller specialist lenders and acquirers of portfolios in the main. But this all changed in early January. More of that in a moment.

Whilst retail funding and Bank of England schemes have predominated, a return of wholesale funding and RMBS/Covered Bonds is inevitable – although it might not feel like it right now.

Although this return to normality is good and to be expected, it will squeeze margins more as subsidised funding falls away.

Mortgage markets are overcrowded

The majority of mortgage lending in the UK is carried out by relatively few lenders who have streamlined products and processes to both cut costs and to minimise conduct risks, which are now greater after the Financial Conduct Authority’s Mortgage Market Review reforms of October 2014.

This in turn has led to a growth in underserved and niche markets and if you look at products in the mortgage market today and compare it with say 20 years ago, I’d say that there is very little innovation.

But we have too many lenders chasing too little business which has inevitably led to margin compression and credit creep. This is not so good.

To be specific, amazingly we have around 145 lenders today compared with around 100 in 2007. Of these, the top six lenders command more than 70% of all mortgage lending in the UK and if you broaden it to the top 15, they account for around 90% and focus on high income affluent customers. So that means around 130 lenders compete for 10% of the market. About £26bn per annum!

And it doesn’t end there. Latest data from the Bank of England tells us that 17 banks have been authorised in the UK since 2013 and there are more in the pipeline. No wonder credit and price wars have started.

We also have an ageing population with increased outright homeownership and there is now considerable housing wealth concentrated in older homeowners, with those over 55 years having wealth of more than £1.8tn.

As the borrowers pay off their mortgages, they will reduce the stock of loans outstanding, even with some of them taking out lifetime mortgages of one sort or another.

Pricing and risk are still used to get business in the majority of the market – and the big lending players have the balance sheet firepower to achieve this. For smaller lenders, not to understand this could be fatal.

Funding schemes

As we have seen, there has been a range of funding schemes available to banks and building societies which have allowed them to fund mortgages at close to zero marginal rates.

This has stimulated the markets but has meant smaller non-bank players have had to concentrate on market differentiators to compete at all.

Now these schemes are in run-off, this will address the imbalance to some extent and allow smaller lenders to compete on a more level playing field.

The effects of tighter regulation and oversupply in the low risk sectors has been that the number of prime customers is now in decline.

The larger lenders have exacerbated this by industrialising their processes and simplifying products. This means that more can be done on an automated basis to both cut costs and reduce regulatory conduct risk. But it comes at a cost.

With house price growth massively outstripping wages growth, the first-time buyers’ market has fallen sharply.

Coupled with ageing borrowers paying off their mortgage, the mortgage market may well have peaked and is now in long-term decline in my view.

But all is not lost – even though around 130 lenders are fighting over the £26bn of lending per annum not transacted by the top 15 lenders, we are seeing a re-emergence of specialist lenders focussing on gaps in the market – including higher risk borrowers.

A note of caution

Income multiples are higher today than pre-crisis and rising as is the house price/earnings ratio which is close to the all-time high we saw just before the credit crisis.

Although arrears are low and falling – this is to do with the low interest rate environment and little to do with lenders skills in my opinion!

So now to funding

It’s hard to think that until the 1980s the mortgage market was entirely dominated by building societies and retail deposit funded.

Centralised lenders started to appear in the early 1980s and the first UK securitisation was in the mid-1980s – the so-called ‘MINI’ deal.

Now, apart from retail funding, we have securitisation and Covered Bonds (similar) and many other options such as ‘flow deals’ where a lender writes loans and then ‘sells’ them to a funder which could be another lender or a fund such as an asset manager.

We have had peer to peer (P2P) lenders where they source matching funds from individuals and then lend the money to borrowers.

And they are broadening out beyond retail funders to institutional funding to become ‘market place’ lenders. In the case of Zopa, the world’s first P2P lender, it has also become a bank.

What is a lender? A broker? An originator? It’s all blurring and these terms are somewhat interchangeable.

Back to first principles

Warehouses – not a building in this case but a temporary facility which funds mortgages until you have enough to sell them as a portfolio or securitise them.

These are generally a one-year maturity facility and providers are usually banks. Banks like to see a clear ‘exit’, i.e. they don’t want to be left funding a bunch of mortgages for 25 years – they want it to be a temporary funder. When the ‘exit’ isn’t clear, they can become very nervous!

So what happened in January when there were clearly a few problems? We came back from Christmas and then all hell broke loose.

Secure Trust Bank announced it was pulling out of the mortgage market. I believe that was more to do with my earlier comments about too many lenders chasing too little business.

I think Secure Trust  just decided it couldn’t find a profitable, low risk niche that met its requirements so it is out for now. Sensible!

Then Fleet Mortgages announced it was pulling products. My reading of what happened is as follows:

  • Year-end had just closed so investors had squared away their immediate investor needs.
  • Significant geo-political risks remain and not just in the UK. But then we have Brexit.
  • Brexit means uncertainty and if you were an investor who didn’t need to invest just yet with the whole year ahead of you, why wouldn’t you wait until Q1 was out of the way so that at least you could see whether the UK leaves the EU with a deal or not?

You have to remember that there aren’t too many investors operating in the UK RMBS markets compared with pre-crisis days and some of them are just ‘yield tourists’ – chasing deals globally where they see the best returns and risks.

And if you were a bank providing a warehouse and you couldn’t see a clear ‘exit’ you might wish to reign in lending until the picture became a little clearer. Simples!

This should be seen as a short-term issue – it’s happened before and I daresay it will happen again. Worry not!

Securitisation is re-emerging

Securitisation was absent in any meaningful way from 2007 until 2012 – more latterly because major lenders just didn’t need it given the plentiful supply of liquidity from the Bank of England at subsidised rates.

The bad press applied to RMBS was, at least as regards Europe, unfair. The UK has been 80% of this market in Europe and defaults on UK RMBS have been and continue to be close to zero.

Ill-informed coverage around credit and liquidity issues and lazy bundling with the very different US market led to securitisation being dubbed a ‘bad thing’.

To be clear, RMBS provides funding to maturity and is designed to survive major stress scenarios. And it has come through with flying colours.

Retail funding for mortgages – how useful?

There’s nothing wrong with retail funding, but it is not the panacea to all funding problems as some people think given inherent pricing and maturity mismatch.

With new deposit takers on the block such as Goldman Sachs with Marcus, don’t expect retail deposits to be a cheap source of funding.

And if price wars break out then one effect is that deposits move from one account to another with increased velocity. This has the effect to shorten the duration of the funding with any one institution.

Not a good thing when mortgages are long-term assets needing a long-term funding solution.

More competition means costs escalate and less money is available to fund longer-term assets – duration shortens and with the effect that retail funds become a less useful and more costly way of funding going forward.

Diversification of funding is the key! It is essential that we don’t focus on just one form of funding – we need retail and wholesale.

To summarise

The UK mortgage market is challenging and in long-term decline: first-time buyers are falling away given tighter conduct and prudential rules; house prices continue to escalate with supply/demand imbalance outweighing, over time, even short-term Brexit impacts; and wage settlements are not keeping pace with inflation.

Like many countries in the world we have an ageing population – around £1.8tn housing wealth is with the over 55 year olds and they are paying off their mortgages.

The trouble is that many people are asset rich and income poor and this, coupled with the legacy of mortgages with no repayment mechanism is giving rise to a growing need for lending into retirement. Expect to see continuous growth in that market.

We generally have much less product innovation than we did but remember, the UK still ranks No1 in the world for technology innovation in financial services.

Securitisation is making a comeback but there are far fewer investors than there once were.

There are too many lenders, too few borrowers.

The UK may have plateaued in some respects but it is still a very significant market with advanced products, technology and regulation

The UK has major headwinds – at least for now with Brexit.

Expect lending to get tougher – some lenders won’t make it as things stand given we have too many competing for the same business and, if I’m right, the mortgage market has plateaued and is in long-term decline.

There are opportunities but it would be fatal to get caught up in price wars with the mainstream lenders.

Source: MortgageFinanceGazzette

Rethinking Housing Finance

Water pass garri is a very apt way to describe the housing finance situation in Nigeria. The Managing Director of the Federal Mortgage Bank at a recent industry event mentioned that since inception in 1973, the FMBN has funded 18,935 mortgages at a total cost of N193.4 billion.

To put things in context, Nigeria has a mortgage to GDP ratio of circa 0.6%, which is puny, compared to our regional nephew; Ghana which stands at 2%, and very abysmal when viewed against south Africa with a 31% ratio. Clearly, while the mortgage industry has been around for nearly half a century, it has not shed its nascence.

The obvious question then is; if the mortgage industry is so underdeveloped, how have Nigerians been acquiring homes?

Available data suggests that over 90% of homes in Nigeria are acquired by incremental building. This is analogous to buying a car in parts; one tire today, a carburetor in six months and a pair of seat belts a while later.

However, as grossly inefficient as this method of home acquisition is, given the very high interest rates for mortgages, it is by far the more practical, and affordable option open to most Nigerians.

In light of the pittance that the FMBN brings into the housing finance pool, the effective mortgage interest rates in Nigeria which ranges from 15% – 22% will make even soulless loan sharks in more advanced economies drool with longing. So, why isn’t capital flowing, as it should in the direction of the greatest return?

Why isn’t the Nigerian mortgage sector awash with patient international capital in pursuit of the clearly higher returns that can be made?

There is a long list of reasons but these three are perhaps most critical. Firstly, the significant foreign exchange risk associated with volatile frontier markets; secondly, the fact that capital is mostly sector agnostic, and so even if it comes into Nigeria,

it would probably go into sectors with less risk, and greater asset liquidity; and thirdly, the often ignored fact that in spite of the touted housing deficit figures, the high poverty rate in the country means that there is actually very little effective demand for housing.

Since pulling oneself up by the bootstraps is in reality a rare miracle or a freak accident, how else might we succeed at the more practical matter of attracting capital into the mortgage sector?

Apparently, our current macro-economic and policy environment makes it difficult to pull in patient institutional capital.

Consequently, it will be useful to explore other avenues for attracting capital that are relatively cheap, and somewhat patient.

One such vein of capital can be diaspora remittances. Most recent data indicates that annual remittances through formal channels amounts to about $25billion.

A useful backdrop against which to view this figure is the total mortgage loans generated by FMBN in its nearly half a century of operation; 193 Billion i.e$0.5billion.

Clearly, given the right policy, and legislative framework, and a conscientious marketing programme, the Nigerian Diaspora can with a tiny fraction (2%) of their annual remittances, equal FMBN 50 year performance.

Source: Wole Olabanji

Legal knots buyers can’t ignore when buying properties

Whether for personal or commercial investment purposes, there are legal issues buyers must give adequate considerations to enable a seamless acquisition and avoid bundles of litigation.

Checks by BusinessDay revealed that most Nigerians do not take into consideration some legal requirements on a property before purchasing, hanging their fate on the neck of agents.

The trust on the property realtor to carry out all due diligence on a property, sometimes as a means of reducing cost, make people fall prey to dubious and fraudulent property dealers.

 Analysts polled by BusinessDay reeled out the step-by-step legal requirements that should be ascertained by a potential property owner before making payments for a property.

Yemi Opemuti, chief executive officer at BAM & GAD Solicitors, a commercial, corporate and business law firm, explained to BusinessDay that initial considerations must include all title documents such as a purchase receipt, survey, title documents, that is, certificate of occupancy or approved building plan of the owner in the case of a landed property with an existing building.

“Ask for survey, go and chart the survey at surveyor general’s office to determine whether the land falls under government acquisition,” he advised.

This is imperative as many developed areas in Lagos fall under acquisition without buyers knowing.

“A property might be on Adeyemi Street in Lekki Phase 1, but unscrupulous sellers can present you the survey of a property on another street where the land is free from acquisition,” Opemuti explained further.

Breaking down the due diligence requirements, he said that since the certificate of occupancy is issued only once by a state governor, buying a property with an existing C-of-O will require application for governor’s consent. The consent acknowledges the transfer of ownership to the new buyer.

Corroborating him, Florence Alao, a real estate legal adviser, said a buyer must first ascertain if the property has been registered.

 “That is if it has a titled document in the name of whoever you are buying from, not from a roadside agent (Omoniles) who issued the person a land purchase receipt and also the registration of the property  should not be ongoing as at the time of the purchase,” Alao told BusinessDay.

Secondly, a legal research has to be conducted to ensure the property is not in combat or pledged for a credit facility because, in that case, the bank will register their interest on the title, Alao explained.

But legal issues vary from place to place and case to case.

In Lagos State, for instance, there are federal lands in some parts of Ikoyi, Festac Town and Abeokuta Expressway and likewise other locations. In these locations, buyers have to apply to the federal ministry of works for either C-of-O or consent which will be signed by the minister of Power, Works and Housing on behalf of the federal government before acquisition happens.

There are also areas in Lagos where excision—land acquired by the state government but later released to the customary or native land owner – is necessary.

“This is common within the Lekki area down to Epe. The excision is covered by gazette including the title of the customary owners, Opemuti noted.

“In that situation, a buyer needs to ask for the excision.”

Based on that, the buyer can make enquiry at the land registry as regards whether the excision given is genuinely issued by the Lagos state government to avert fraud.

However, there are also other issues buyers must be sensitive to.

If a property is to be sold by a company, a minimum of two directors must sign the Deed of Assignment, that is, the contract between the buyer and the seller.

Opemuti advised that soliciting lawyers in such case could conduct a search on the company to determine whether the signatories are current directors of the company. If not, it may result into a bad sale.

In the event of purchasing a property tagged Mr and Mrs, the husband and the wife must also sign.

Where  the owner is late, a buyer needs to seek granted probate will or ask for letter of administration in the event that the owner died intestate.

Granted probate will is the will by the former owner registered with the court while ‘letter of administration’ is for someone that died without a will.

Either the wife of the deceased or the children or family member could be appointed as the administrator of a property. If not, a buyer should decline until that is done in the court.

In the case of a family land, buyers must seek principal members of the family or accredited members capable of being signatories. If a party is selling on behalf of the other, a buyer must seek the registered power of attorney to sell.

The process of buying land in Nigeria could be challenging and poses a great risk without being properly guided.

Explaining his horrible experience to BusinessDay resulting from a property he acquired around Fadeyi in the Lagos, a buyer, who did not want to disclose his name, said “till today the property I bought through the help of an agent my brother recommended to me is still in court.”

He explained that after “I bought the four flat apartment with all necessary documents given to me, another man came to the house six months later and had same documents as the ones that were presented to me claiming ownership of the property.”

He admitted that he did not carry out any form of legal investigation as he was told that the agents knew how to go about getting everything and considering “my brother recommended him, I didn’t have any reason to waste money, but now I regret not doing all that.”

Responding to why most people do not like to involve a legal professionals when acquiring a property, Yemi Stephens of Estate Links said people do not recognize the place of a professional in a real estate transaction because they want to save cost.

“People don’t like paying professional fees and it is penny wise pound foolish,” Stephens said. He explained that even being a professional in the real estate industry does not stop him from consulting a Lawyer to help with his paper work when he wants to acquire a property.

“I can conduct due diligence search on a property but still what the trained eyes of a lawyer will see I might not be able to see. The case is the same for an engineer or a lawyer who is asked to come and do valuation of a property; they might not be able to see what I will get out from a property,” he noted.

On other areas where the expertise of a legal professional is required during the acquisition of property is confirming the originality of the property documents.

“There is also need to do verification to know if it is the original title you are holding, because sometimes title documents are cloned and this can be verified with the land registrar because they usually keep an original copy of a property document they issue,” Alao cited.

BusinessDay checks have shown that getting registration for land and real estate properties is one of the many issues that drags Nigeria’s property market which  is deficient by more than 17 million units.

“The land registry process, as I was told you, takes two weeks, but in the last two months I have been having an issue, and I have been advised by friends who have had similar issues to get a solicitor to help push on it,” a developer in Lagos told BusinessDay on condition of anonymity.

Source: Okafor Endurance

Focus shifts to interest rate as banks intensify loan buying

Deposit money banks (DMBs) in Nigeria have intensified competition to acquire retail and corporate customers following a strategic focus around loan refinancing.

The banks are making reasonable efforts at acquiring the loan liabilities of target prospects from other banks, with an offer for discounted interest rates.

Expectedly, banks making the bold move are majorly those that are reasonably liquid to take such risks for an enhanced customer base. They cut across the tier-1 and tier-2 lenders.

BusinessDay learnt these banks meet both large and small corporates as well as individuals with various categories of existing loans, preferably the soft loans offered to salary earners. Very simply, their targets are the salary accounts of the prospects.

A director in one of the tier-1 banks told BusinessDay on the phone that the strategy is an opportunity for collection and credibility.

The director explained that banks target certain names with credibility and also look at the entire value chain of distributors and staff of a company.
The Central Bank of Nigeria’s latest publication of the applicable rates for each of the DMBs as at June 22, 2018 shows that banks charge between 4.20 percent and 20.5 percent for prime lending and between 20.4 percent and 41.5 percent for max lending.

Total value of credit allocated to the private sector of the economy by the banks stood at N15.13 trillion as at the fourth quarter (Q4) 2018, a decline of N455 billion from N15.58 trillion at the end of the third quarter (Q3) 2018, according to the National Bureau of Statistics (NBS).

The banks that are liquid target customers of cash-strapped banks with incentives in form of lower interest rates and afterwards, restructure the loans.

“This is a form of loan refinancing. It makes a business sense where customers have loans with high interest rates which they contracted in periods of high interest rates,” said Taiwo Oyedele, head, tax and regulatory services, PwC.

The CBN has kept its monetary policy rate (MPR) at 14 percent since July 2016, when it lifted the rate by 200 bps.

The regulator has also kept unchanged the liquidity ratio at 30 percent, cash reserve ratio at 22.5 percent and +200/-500 basis point asymmetric corridor around the MPR.

“Now that rates are trending downward, a bank can refinance such loans at a lower rate and still make money in the process. Overall, it is a reflection of the intense competition in the sector which is good for customers and the economy in general,” Oyedele said.

The aggressive loan push by banks has further intensified following the continued drop in Nigerian Treasury Bills yield.

Ayodele Akinwunmi, head of research, FSDH Merchant Bank Limited, said banks offering lower rates to customers is a market strategy.

On the implication of the development on the banking industry, Akinwunmi said if the rates continue to drop, interest income of the banking sector will drop. Income of banks consists of about 70 percent of their loan.

In the week ended March 1, increased foreign investor appetite in emerging markets, sustained low frequency of Open Market Operations (OMO) auctions and buoyant liquidity compressed yields by 122bps W-o-W across tenors in the Treasury Bills (“T-Bills”) secondary market to 13.0 percent, from 14.2 percent the previous week, Afrinvest Securities Limited said in a report.

Source: BusinessDayNg

Opportunity for developers as demand for short-let apartments rises

A recently conducted research into short-let apartments in the commercial real estate space of property market in Lagos indicates that the need for short-let apartments has maintained an upward trend in spite of the current challenging economic situation in the country.

This increased demand has spurred savvy business operators to accelerate their expansion plans in 2018 by seeking out strategically located residential buildings or vacant apartments in prime areas to be converted into short-let apartments to meet the flexible needs of people who require such accommodation.

Rethinking and re-ordering of priorities by multi-national corporations who now prefer to keep their expatriate workers in short-let apartments instead of full-scale residential accommodation, is a major driver of this rising demand.

“One factor that has led to the increase in this sector is the upsurge in demand by corporates who would rather pay for short-let apartments for their expatriate staff as opposed to paying annual apartment rentals,” Erejuwa Gbadebo, CEO, International Real Estate Partners, IREP, confirmed

Another major driver of this new trend is tourism, especially religious tourism which is growing in multiples in Nigeria with people looking for ‘miracle’ trooping into major cities, especially Lagos, on daily basis. The new trend, therefore, presents investment opportunity for real estate investors and developers.

The rental range for short-let apartments is wide and depends on the quality, branding, unit size and location of the offer.   Rents can go as low as N25,000.00 for a studio apartment to as high as N140,000 per day for a three-bed apartment.

“The commercial outlook for short-let apartments remains attractive in light of positive market fundamentals, expansion possibilities and strong levels of profitability.

We believe this market presents unlimited opportunities and is a sector likely to spur increased investor interest,” Gbadebo posited.

At global level, the hospitality industry is said to be one of the world’s largest. A new report estimates the value of the industry to be in excess of $7.6 trillion in 2016 and is expected to reach $11.5 trillion by 2027; 32 per cent of projects under development in Africa are in the Western countries, currently home to just seven per cent of the existing supply.

Most of these projects are in Nigeria, primarily in Lagos and Abuja, where projects spend longer in the pipeline phase than in most other African countries.

The new report notes that the economic recovery in Nigeria saw the number of room nights sold in Lagos increase by 17.6 per cent with the tourism sector contributing $2.2 billion to the state’s GDP in 2017.

Despite the security challenges in many quarters, hoteliers continue to consider Nigeria an important market for the West Africa region, seeing that supply remains grossly unrepresentative in comparison to population and perceived demand.

Across the nation, more infrastructure projects were awarded to Asian firms, increasing the number of Chinese consultants, workers and family members who need to shuttle between home and Nigeria.

This also increased the demand for hotel accommodation, guesthouses and relaxation spots, creating investment opportunities for space providers.

Source: VanguardNG

Everything you should know about getting preapproved for a mortgage

Getting a mortgage pre approval can give you a big advantage in the home-buying process, so much so that’s it’s almost standard these days in most areas of the country.

This golden ticket involves some of the same steps as a mortgage application. You provide detailed information on an application about your income, debts and assets. The lender does a hard credit check.

Soon, if you’re approved, you’ll receive a loan estimate telling you the maximum amount you can borrow.  With this estimate, you and your real estate agent will know what price range of homes you can afford.

Here are three reasons to get a mortgage pre approval before house hunting:

1. Get a better idea of what you can afford

You dream of an amazing house in an amazing neighborhood. But don’t waste time and energy looking at houses you can’t afford.

A pre approval can help determine how much you can afford and what a lender would be willing to lend you.

Getting preapproved for a $300,000 loan means you should look for a home that’s less than that.  If you plan on making a 20 percent down payment, then you can look at houses in the $360,000 and below range as a rough starting point.

But there’s more. Take into account your household expenses, and other financial obligations that lenders won’t view on your credit report.  Think about all those thing

s you pay for each month such as groceries and car insurance that factor into how much house you will actually be able to afford.

Lenders generally want no more than 28 percent of your gross monthly income(before taxes, that is) to go to housing expenses, including mortgage payment, property taxes and insurance.

2. Stay competitive with other potential buyers

It’s fun to start looking at homes and imaging your kids playing in the backyard. Boring paperwork is easier to procrastinate and leave for later, says Michael Highfield, professor of finance and chair of real estate finance at Mississippi State University.

“But in this competitive market, any serious buyer should pursue a preapproval from a lender in advance to beginning a home search,” he says.

You’ll be at a huge disadvantage if you find your ideal home and lose out to other buyers who do have that preapproval letter in hand.

3. Have your offers welcomed by agents

Agents pretty much run the real estate search process, and you want the seller agents to be receptive to any offer you make. Patty Da Silva, owner and broker of Green Realty Properties in Davie, Florida, counsels her clients to set aside offers on homes from buyers who don’t have a pre approval letters from their banks.

“You have to have a pre approval, and it must be a real preapproval where the lender has verified not just your credit, but bank statements and tax returns, and I call the lender to verify that,” she says.

What is preapproval versus prequalification?

Prequalification and preapproval are different in important ways and easy to confuse with each other. A mortgage lender might tell you how much you prequalify for if you give a quick overview of your finances. While helpful, prequalification isn’t concrete enough to agents or home sellers these days.

A preapproval, on the other hand, relies on documentation and shows lenders what you qualify for based on your financial history and income.

A preapproval uses your paper trail to determine how much home you can afford. It means you complete a mortgage application and have a hard credit check done to determine your creditworthiness.

When to seek a preapproval

The best time to get preapproved for a home is after you’ve thoroughly reviewed your credit reports and score to make sure they’re in top shape. Preapprovals are typically valid from 60 to 90 days because your credit report could change in that time.

It’s not a bid thing to get preapproved more than once. Before you start looking at houses, consider getting preapproved for a mortgage first.

Getting an idea of how to get your finances in order can be helpful to securing a low interest rate and a home you can afford.

While a hard credit check might dip your credit score a little bit, it’s only temporary. To give yourself peace of mind, get your first preapproval anywhere from six months to a year before you plan to buy a home.

This should give you enough time to clean up your credit report and build a solid down payment.

How to get preapproved for a mortgage

Before you do anything, get all the information organized that the lender will need. Some of the documents to produce for the lender include:

  • Current pay stubs
  • W-2s from the last two years
  • Last two federal income tax returns
  • Bank statements (from all accounts in your name)
  • Credit report
  • Driver’s license or passport

If you are self-employed, it might get a little more complicated. You will need to show some other information that backs the fact you have consistent income to pay a mortgage.

The other documents might be business bank statements, a business license, and company tax returns.

The process of mortgage preapproval

During the application time, lenders will be looking at your credit score, credit history, and debt-to-income ratio – or what percentage of your monthly income goes towards paying your current debts.

Before even talking with a lender, you should first get a copy of your credit report. You need to know if any red flags will pop up when the lender is checking.

Credit reporting agencies (Experian, Equifax, and TransUnion) by law must give you a free copy of your credit report once every 12 months.  You can get all three reports at www.annualcreditreport.com. Look this over carefully for any mistakes.

Lenders use that report not only to determine whether they will give your mortgage pre approval but also what interest rate you will receive.

Lenders will examine the report for credit utilization (try to keep this below 30 percent), if you paid your bills on time and as agreed, and how many types of credit you are juggling in your life.

Steady employment and income also play a big part in your getting pre-approved for a mortgage.

Proving you have steady income and a solid job is important to making sure you will continue to repay the loan.

Acing your mortgage pre approval

When you’re starting out in your home-buying journey, there’s a lot to go over. Here are a few things to keep in mind as you’re planning your purchases.

Shop with different lenders. It’s fine to go through the preapproval process with a few mortgage lenders, as long as it’s within a month’s timespan.

Because each pre approval requires a hard credit check, your score will be impacted. If you obtain your pre approvals around the same time, it will count as one hard inquiry.

Consider the down payment. The more money you can put down, the better your loan terms can be. If you put down less than 20 percent of the home’s purchase price, you’ll have to pay private mortgage insurance, which will add to your monthly payments.

Also check for down payment assistance. Some 87 percent of U.S. homes are eligible for one or more homeownership programs, and the down payment program benefit most frequently received is $10,000, according to Down Payment Resource .

Don’t spend a lot or open new accounts after your pre approval. Whether you’re doing it for the first go-round or you’re hitting the home stretch, it’s important to keep your spending low.

Avoid making any large purchases from when you get preapproved to when you close to keep your debt-to-income ratio consistent.

Continue to pay your bills. Staying up-to-date on your regular bills is important to your payment history. Falling behind could mean a big hit to your credit score.

A preapproval letter is great, but remember you are not locked in to the lender or lenders that gave it to you.  Shop around for the best rate and choose the lender that offers you the best terms.

Keep the status quo on your finances

Just because you got a mortgage pre approval, that doesn’t mean it is clear sailing to the closing. Your lender will recheck things such as your credit, bank statements, income and employment shortly before you close on the house.

Making big purchases, taking out new loans or lines of credit, or even closing accounts can delay closing or derail your loan altogether, says Ralph DiBugnara, president of Home Qualified in New York City.

“Any skeletons you have in your financial closet will be found, so it’s best to be as honest and upfront as you can,” he says.

Source: Bankrate

Ethiopia’s Oromia hit by protests over Addis Ababa housing project

Hundreds in some cases thousands of people in Ethiopia’s Oromia region took to the streets today (March 7) in major towns to protest the manner in which the Addis Ababa city administration alloted condominium buildings.

Reports indicate that over a dozen locations across Oromia – the largest and most populous region – were hit by the protests. Among other places Jimma, Ambo, Awaday, Bale and Adama were all affected by the action.

The city administration led by the deputy city mayor, Takele Uma Banti, on Wednesday (March 6), made allocations of residential space built in an area called Koye Feche located in the Oromia Regional State’s special zone.

Addis Ababa which serves as the national capital is located in the Oromia region but is one of two chartered cities in the country. The other one is Dire Dawa.

Oromos have long claimed the capital which is referred to in local parlance as Finfeene.

The city administration gave over 5,100 people 3 bedroom apartments on condominium sites mostly in the capital. While 7,100 people got a studio or one and two bedroom apartments in Koye Feche 1 & 2 sites.

The deputy mayor said farmers who were displaced from the sites were included in the transfer without lottery. The issue of uprooting local farmers to make way for the housing project has long been a divisive issue.

The project which dates back to 2016 forms part of plans to deal with rapid population growth and an acute shortage of affordable housing.

A authorities in Addis Ababa and in smaller cities across the country have been building condominium units targeting low and middle-income groups, financed entirely with public money.

Although Ethiopia is one of the least urbanized countries in the world, Addis Ababa’s population as at 2016 was thought to be close to four million, and growing at a rate of nearly four percent per year.

 

HOUSING LOTTERY FOR POOR

The housing complexes are typically four storeys high, with the aim of promoting densification and containing the city’s urban sprawl.

Poor residents who do not own property and are instead reliant on insecure tenancies, were encouraged to register for a lottery system which allocates the units as they become available.

Those who can afford the deposit and the scheme’s generous mortgage repayment terms are then granted ownership of their units, although all land in Ethiopia is still formally owned by the government.

The aim is to transform a housing sector historically characterized by rental occupation into one based on private home ownership.

Under the previous communist regime, known as the Derg, approximately 60 percent of housing in Addis Ababa was rental accommodation and government-owned housing in the Kebele municipal divisions accounted for 93 percent of the sector.

Kebele housing today is of typically poor quality, with homes made of wood and mud and without proper sanitation and infrastructure.

According to a report produced for the World Bank in 2016, the Integrated Housing Development Programme, IHDP, marks a “radical departure” from previous approaches to housing in Ethiopia.

The government aims to regenerate the inner city by replacing Kebele slums with condominiums.

Source:African News

How housing microfinance in Africa can improve quality of life

Access to adequate housing for low-income earners is a critical development issue globally. A safe and stable home is the first step to a productive, healthy life. Yet owning a home is beyond the reach of the vast majority.

In sub-Saharan Africa, the poor have very limited access to long-term financing for housing, which is almost invariably limited to commercial banks offering formal, multiyear mortgages.

Only 2.4 percent of the Kenyan population, for example, is able to afford typical loan rates. At the end of December 2018, there were only 26,187 active conventional mortgages in the whole country — the majority of which were granted to urban professionals.

In Uganda, which has a population of 42.8 million, the number was just 5,000 in 2018.

We are continuously exploring and innovating our approach to address additional dimensions of the housing crisis and encourage others to do the same.

Housing microfinance allows low-income families to improve their housing incrementally, as they can afford it. Through access to housing microfinance, households in sub-Saharan Africa can improve their housing and their quality of life.

That is the key finding of evaluations of a recently concluded six-year project in Kenya and Uganda.

Microfinance at work

Building Assets, Unlocking Access

The partnership between Habitat for Humanity and the Mastercard Foundation is aimed at making an impact on housing in Africa by enabling existing financial service providers to design housing microfinance products and housing support services that can be accessed by low-income families to use in the incremental improvement of their homes.

The objective of the project was to develop scalable and innovative housing microfinance to be replicated by other financial service providers in sub-Saharan Africa.

The project has enabled over 70,000 households to access housing microfinance products improving their shelter, living conditions, and social well-being.

The Building Assets, Unlocking Access project helped financial service providers to develop housing microfinance products for people living on $5-10 per day.

The participating institutions offered loans of $30-10,000 for improvements such as adding an extension, toilet or running water; finishing a roof; adding insulation; as well as for constructing a new home.

These products were designed for the vast majority of the population who live in substandard accommodation and are locked out of formal housing finance.

These households may possess a firm desire to improve their living circumstances and prospects, but can only afford to do so incrementally.

In Kenya, a study found that low-income women who took up the Nyumba Smart Loan offered by the Kenya Women Microfinance Bank used it to improve roofs and walls.

Nearly 30 percent expanded their homes, and around 9 percent built separate kitchens, As a result, overall housing satisfaction rose by almost 15 percentage points over just a one-year period.

In Uganda, the study found that the existing quality level of housing was already comparably higher than in Kenya. However, a 20 percentage point increase of clients used their loans to build separate kitchens. Overall housing satisfaction rose by 30 percentage points.

In addition, the improvements made by Uganda borrowers were not confined to their own homes, but frequently applied toward development or improvement of rental units.

These rental units contributed to increased income for borrowers — an unanticipated dynamic in our study and a fact that addresses the key concern many have that housing microfinance diverts funds and resources away from income-generating activities.

Improved homes mean better health outcomes too. In children younger than 6 in Kenya, significant decreases were found in vomiting, sore throats, and rashes, all illnesses associated with allergies and poor environment.

In Uganda, however, these health improvements were not observed, with evaluators noting that it can take time for health indicators to become evident.

Janet Maritim, a farmer in Bomet, western Kenya, said: “It has been a huge relief not to worry about the health of our children. In the old house, the cold air that ran through the rooms always made me fear that a flu would turn into a serious illness like pneumonia. It makes me happy to see the children thrive.”

Jane Migare-Miluka waited seven years for new housing to be completed. When it finally was, her name was not on the list of residents.

This is part of our six-piece Failed Aid series, which investigates citizen reports on failed or unfinished aid projects in Africa.

Improved housing can have a positive effect on children’s education, offering more space in which to study and making them less likely to miss school due to sickness.

Though it was too early for such factors to show up meaningfully in the survey, many respondents expressed delight with the impact their home improvements were having on their children.

A construction worker starting the walls of a house in the region of Machakos, Kenya. Photo by: HFHI

The business case for housing microfinance

Not only does housing microfinance align with the social mission of many microfinance institutions, it also makes financial sense, with 47 percent of institutions saying such loans have relatively the same profitability as more conventional microfinance loans, such as those for business or farming.

At Habitat for Humanity, we believe housing microfinance can reach far greater numbers of people.

The sustainability of these products will carry the impact of improved housing forward and the market is demanding more progress in this sector, as indicated by the recent announcement of $26 billion in investment pledges for housing in Kenya.

Two of the key partnering banks — KWFT and Centenary Bank — are posed to disburse an additional 50,000 housing microfinance loans or so over the next 12 months.

There are obstacles, of course. Other financial institutions will need long-term funding and guidance as they learn how to develop, market, and manage housing microfinance products for their markets.

To expand the product, institutions will need to identify adequate sources of long-term funding. Each market is different, and attention will need to be paid to designing loan products that suit local characteristics.

Also, awareness of the housing microfinance concept is still low. With skeptical looks, people ask me what this small-loan, incremental approach looks like in practice.

cee

The findings of these evaluations are a great step forward in addressing the skepticism and understanding the real impacts.

We are committed to sharing the opportunity that these products present for improvements in low-income housing. I am convinced this can become a major sector in the continent and do a great deal to relieve frequently poor housing conditions.

When I discuss what we have done in Uganda and Kenya at conferences and forums, I realize that this is but one part of a larger housing market dilemma.

We are continuously exploring and innovating our approach to address additional dimensions of the housing crisis and encourage others to do the same.

Source: Kelvin Chetty

4 benefits of married couples jointly owning property

In addition to making an informed decision, property buyers are also working out the best mode of acquiring their immovable assets.

Whether it’s choosing the best financing option for tax benefits or directly dealing with the seller to avoid brokerage, Indians are leaving no stone unturned.

One such smart way is the decision to register the property jointly, with the spouse.

There are intangible benefits of joint registration of property like elevating the status of the wife in a patriarchal society, better bonding, long-term commitment, and trust between spouses. However, not many are aware of the financial advantages.

Loan options for couples

The budget to purchase property is determined by the loan eligibility, which has a specific limit depending on the income. In case of a joint registration, spouses can opt for a joint home loan.

It shares the debt burden between two people and paves the way for a higher loan amount as two incomes will be considered

A joint home loan can be obtained by an applicant along with their spouse, parents or siblings.

Tax benefits for co-borrowers

According to Suraj Nangia, partner, Nangia & Co., “From a taxation point of view, a joint home loan is beneficial to all co-borrowers who can claim a tax deduction of Rs 1.50 lakhs for principal repayment under Sec 80C and Rs 2 lakhs for interest payment under Sec 24.

In the case of two or more people taking a joint home loan, each of them can enjoy tax benefits under the Income-tax Act, in respect of the principal and interest paid during a year, on proportionate basis.”

Under section 80C, each joint owner is allowed a deduction of Rs 1,50,000 for principal repayment. They can also claim deduction on the registration charges and stamp duty charges that they have paid for, with total deduction not exceeding Rs 1,50,000.

Additionally, they can also apply for deduction of housing loan interest from house property income, up to Rs 2,00,000 each. However, the deduction should not exceed the interest.

Stamp duty benefits for women

Delhi, UP, Punjab, Haryana and Rajasthan, offer relaxations in stamp duty for women buyers. Punjab reduced the stamp duty charges from nine per cent to six per cent in 2017, for a limited period.

It maintained that from April 1, 2019, urban areas would again invoke a stamp duty charge of nine per cent and the same would be six per cent in rural areas.

The stamp duty rate in Maharashtra, which was recently increased to six per cent from the previous five per cent, is uniform for both, men and women. However, the other states where stamp duty rates are lower for women include:

State For men For women
Jharkhand 7% Only Re 1
Delhi 6% 4%
Haryana 6% in rural8% in urban 4% in rural6% in urban
UP 7% Rebate of Rs 10,000 on overall charges
Rajasthan 5% 4%
Punjab 6% 4%
Maharashtra 6% 6%
Tamil Nadu 7% 7%
West Bengal 5% in rural6% in Urban

(Plus 1% if property cost >Rs 40 lakh)

Same
Karnataka 5.6% 5.6%

Note: List is not exhaustive – charges are indicative and subject to change.

Additionally, many banks such as SBI, HDFC, ICICI, etc., offer discounts on home loan interest rates to women as compared to men. This varies from bank to bank and goes up to nearly one per cent.

 

In the case of single ownership, transfer of property can be lengthy and time consuming.For instance, after the death of a New Delhi resident, his family members found that the flat they lived in, was solely owned by the deceased. The procedure to get the documents in the successor’s name involved excessive conformation to regulations and rules.

“Many people suggested shortcuts involving unethical practices. Finally, my sister took possession of the property after extensive paperwork, mental torture and time,” recounts the brother-in-law of the deceased.

If only the property was jointly owned, these hassles could have been avoided.

“Joint registration of property is always advisable as the spouse is always the successor. This will prevent unwarranted problems in the future after the demise of any person,” explains advocate Narendra Vishnu Sankpal, RV Sankpal & Associates

Source: ANURADHA RAMAMIRTHAM

Global cement body unveils women network

As part of the activities to mark the International Women’s Day, the Global Cement and Concrete Association inaugurated Concrete Industry Women’s Network to attract more women into the sector.

The sector initiative, inaugurated by the GCCA Cement Director, Claude Lorea, aimed at establishing a network of women leaders and experts in the cement and concrete industry and its suppliers, in order to promote gender diversity.

The network, which started informally at the beginning of last week, had already attracted more than 100 women who registered, the association said.

Lorea said, “The sector is well aware that there is a lot more to do to attract women to our industry.

“As a matter of principle, improving gender diversity and equity is important, as well as ensuring that girls at school are attracted to the range of professions and careers we can offer.

“Importantly also, more and more studies show that companies with diversity at senior levels perform better generally and across all three sustainability pillars – economic, environmental, and social.”

The group, according to the association, is a place for women working in the cement and concrete industry to share content, thoughts and ideas among peers, with the shared mission of promoting concrete as the sustainable building material of choice.

It added that the group wanted to establish a network of women leaders and experts in the cement and concrete sector and its suppliers in order to ensure gender diversity, for example in conference panels, by providing a ready network of talent and experience, and to create a culture of diversity across the industry.

 

Source: punchng

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