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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

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

Things to Avoid When Applying for a Mortgage

Before buying a home, you need to know how much you can actually spend during the entire process: paying for the house, downpayment, legal fees, valuation and any other costs that may arise during the entire process.

Most people will use the mortgage route when they decide to buy a house. It is no secret that the mortgage process is both daunting and stressful thanks to all the paperwork involved, and the time and money spent. You need to be extra patient throughout the approval journey in owning your dream home.

The good news is that, if you provide the lender with all the information they require and respond to their queries in a timely manner, you will reduce the pressure involved with getting a loan.

When you apply for a mortgage, you could be wondering why it is taking so long to be approved. Your paperwork seems fine to you, you feel like you have provided all the information they require. But you still feel like something is off. In reality, you could have sabotaged yourself by doing certain things that you were not aware would impact the process negatively. Below are some mortgage application mistakes that could cripple the entire process.

1. Job Instability

Losing your job or getting a pay cut is beyond your control. Having a major career change could affect your chances of being considered for a loan during the underwriting process. If you are in a position to postpone a job switch, hold it off until you receive the financing, unless you are getting a huge pay rise.

A mortgage lender will look at your employment history before they can give you a loan. They need to know that you are in a position to pay off your debt from having a steady income. Usually, a general rule for the minimum number of years you should have worked to qualify for a mortgage is 2 years. This is not to mean that if you have other sources of income, like entrepreneurship, you will not qualify. That is a conversation that you and your lender should discuss your options freely.

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2. Using all Your Savings

You can’t ignore the costs involved when getting a mortgage. Legal fees, valuation, appraisal, registration, are some of the things you need to pay for. This could easily end up leaving you broke with no extra cash in your bank account. Lenders will want to see that you have stored some money to show that you are in a position to repay off the loan. Otherwise, they will regard you as a high-risk borrower and lower your chances of approval. You will also need to budget for more hidden costs when buying a house.

Depending on which financial institution is giving you the loan, the downpayment price will range between 5% and 20%. The higher the downpayment, the less mortgage you pay off.

3. Taking Smaller Loans

You’d never think that a personal or student loan can affect your chances of getting a mortgage to buy your first house. Well, it does. During the prequalification phase, lenders will look at all the debt you have.

If you have any pending loans, make sure you clear them off in good time before you apply for a mortgage. If possible, avoid taking any loans whether big or small. It will just mean that you have more debt that you haven’t cleared.

4. Low Credit Score

Your credit score will determine your risk level as a borrower. To find out your score, there are different companies in Kenya that can provide you with a detailed report. If you’re in the habit of taking loans from mobile lending companies no matter how small, make a point of paying it off before approaching a mortgage lender.

In some cases, you will find errors on the report. People have been accused of taking loans from certain companies when they never did in the first place. In the event that you do realize this, dispute the matter and resolve it as soon as possible. One late payment to a short term loan can play a huge role in getting approval.

5. Impulse Buying

Once your loan is approved, this is not the time to go all out and start buying things to fill up your house. The lender will still monitor how you spend money even before they write you the cheque. Taking on more debt before the money hits your account will affect your chances of getting the mortgage approved. Lenders will ask for your bank statements to check your spending habits. If they see you’re spending money aimlessly, they could deny you the mortgage.

When you think about it, these mistakes that people make prior to applying for a mortgage don’t look like big problems, however, they could be the reason why you don’t achieve your dream of owning a home.

source: BuyRentKenya.com

Bank Loans to Real Estate Industry Dips by N162 Billion – NBS

The challenges confronting the real estate industry have increased as credit allocation by banks maintains a downward trend in the last year.

Data obtained from the National Bureau of Statistics showed that the industry got about N622bn out of the N15.13tn credit to the private sector in the last quarter of 2018.

The amount, which accounted for 4.12 per cent of the total credit to the private sector, was about 12.39 per cent lower than the N710bn recorded in the third quarter of 2018.

In the first and second quarters of 2018, N784bn and N744bn, respectively, were given out by banks to the industry.

The first quarter of 2018 saw growth in credit allocation to the industry when the amount rose to N784bn, up from the N753bn recorded in the last quarter of 2017.

However, the comparison between the first and last quarters of 2018 showed a drop of about N162bn.

Stakeholders in the industry said it had become increasingly difficult to access commercial banks’ loans for investment in real estate.

Investigations revealed that in the last two years, it had been difficult for many developers to break even due to the glut in the property market, which had led to the high rate of default on loans.

It was gathered that commercial banks were no longer interested in financing real estate projects, and had not been putting their money in the industry for a while.

The Deputy President, Real Estate Developers Association of Nigeria, Mr Akintoye Adeoye, said,  “If you go to any bank today and tell them you want to finance real estate development, they will not talk to you because they have had their fingers burnt.”

Adeoye stated that from the glut in the property market due to low purchasing power, interest rate, which he said was around 25 to 35 per cent, had also been a major clog in the wheel of real estate funding.

“Housing is long-term, so it is a mismatch to use a short-term fund to finance a long-term project. Now, banks are not places to go to except on some special projects where the off-takers are members of a cooperative society and they already know how to wrap up the transaction but it will also be expensive for the buyers because the cost of funds will be transferred to them,” he said.

The Chairman, Nigerian Institution of Estate Surveyors and Valuers, Lagos Branch, Mr Rogba Orimalade, stated that from the period the economy went into recession till now, commercial banks had been saddled with the burden of disposing of huge real estate assets acquired through bad loans.

Orimalade said this had made many of the banks wary of investing their money in real estate projects.

He added, “From the period of the recession and even before, we came from an era where the banks had lots of assets, at a particular time the Asset Management Corporation of Nigeria was said to be the biggest custodian of real estate assets in the country and it was mainly because of the bad loans that emanated from the banks they took over. Most of the assets were taken away from the people who gave them out as collateral.

“So, naturally, only very few of them are out giving loans. It is only common sense for a lot of those banks and other financial institutions to look at the amount that they give out. To a lot of them, the industry is not attractive anymore.

He, however, stated that the question should not be about the reduced credit allocation to the industry but rather it should be about what should be done to grow the country’s economy through housing .

“Government says all the time that it wants to grow the economy but the economy cannot really grow without a thriving housing sector; that is the reality. Just as the government is giving priority to agriculture and the Central Bank of Nigeria and other banks are being compelled to give certain loans to agric and SMEs, it is important that the government recognises that housing is key to growing the economy,” he said.

According to him, once housing is taken care of, about 70 per cent of the issues in the economy will be addressed with the potential of the industry to have a multiplier effect on other industries.

Orimalade said, “Until the government recognises and puts a premium on houses, the economy may not really grow as much as it should. There are all kinds of commercial institutions with initiatives for agric.  As far as I am concerned, the same should be done to real estate with housing as a critical part of the economy; in other climes, the economy is determined by how buoyant the real estate industry is.

“I agree that people have got their hands burnt and now prefer to go into other ventures rather than real estate but are the banks giving these credits in a way to help the real estate industry give the economy the bounce that is required? They are not doing that and if not, the question should be put to the government what it intends to do for the industry.”

He said the government should encourage banks to invest more in real estate.

The Central Bank of Nigeria’s Head, Project Administration Team of the National Housing Finance Programme, Mr Adedeji Adesemoye, noted that for the housing issues in the country to be addressed, access to mortgage must be put into consideration.

According to him, one way for the government, especially at the state level to address the challenge, is to sign the Mortgage Model and Foreclosure Act into law.

“The law would help to correct some of the shortcomings of the Land Use Act, which limits access to land and housing,” he said.

He stated that for people to be able to have better access to funding for investment in housing, mortgage culture must be encouraged to grow in the country.

Source: bizwatchnigeria.com

How to speed up your property transfer

Time is money – and transfer delays can be costly

In complex, protracted transactions like property sales, delays are not only frustrating, they can also be extremely costly and may even torpedo the deal completely. However, while some delays cannot be foreseen, it’s possible to exponentially reduce the risk by doing one’s homework and having all one’s ducks in a row from the onset.

This is according to Jill Lloyd, veteran agent and Area Specialist in Rondebosch and Claremont for Lew Geffen Sotheby’s International Realty, who says: “Essentially there are two primary types of delay; the first relating to the confirmation of the sale and those that occur once the sale has been confirmed and hold up the transfer.

“Property transactions are known to be lengthy processes with multiple steps and reams of documentation, and once the potential minefield of suspensive conditions and contractual obligations has been successfully navigated and the deal is finally done, many people breathe a sigh of relief. But the expected downhill cruise to transfer can still become an uphill battle if one isn’t careful.”

 

Lloyd explains how this can happen:

“One of the main reasons for delayed transfers is that the timeline is out of sync, especially when two or more deals are linked and money from one sale is needed to purchase the next property and so on. I once brokered a transaction with seven linked deals all dependent on the sale of a Rondebosch East home and we had to pull out all the stops to get the house sold in time.

“It is also very important for buyers to budget for the transfer costs of the new property they are buying or have an access bond in place on their current home, otherwise when the attorney calls for bond cancellation that bond account will be frozen and they will not be able to access the funds.”

She adds that not giving the required 90 days’ notice of cancellation of the existing bond can also cause delays as well as avoidable late cancellation fees.

“If a homeowner is seriously thinking about selling, they should give notice to the bank holding the bond. In doing so, they are not committing to selling, merely notifying the bank of the possibility and they can keep on renewing the cancellation if they don’t sell timeously or revoke the notification if they change their minds.”

Craig Guthrie, Partner at Guthrie Colananni Attorneys says: “One of the transferring attorney’s key roles is to coordinate and control all the role players involved in a transfer, including SARS (transfer duty), the municipality (Rates Clearance Certificate) and the bank.

In order to do this as seamlessly as possible, it is essential that both the buyer and seller submit all the necessary documentation in time, as per the legal requirements and without omissions. This is especially important if either party resides in another country or is otherwise difficult to contact for information and signatures.

 

Guthrie says that although hiccups and stumbling blocks can occur at any point of the transaction, they most commonly occur at the following stages:

  • Bond Approval
  • Bond Cancellation
  • The signing of transfer documents
  • Obtaining valid compliance certificates
  • Issues encountered at lodgements requiring the removal of notes by the Registrar of Deeds
  • Transfers which are unusual and more complex, such as estate transfers which require an endorsement of the Master of the High Court, which can cause a delay

Most of these delays can easily be avoided, through prompt co-operation with the transferring attorney and the paralegal handling their transfer or, if they are outside of South Africa, by giving a valid power of attorney to a person within South Africa who can sign the necessary documents and act on their behalf.

 

“It’s vital that the client is completely up front with the agent regarding their financial situation,” says Lloyd. “We can then facilitate and expedite the process by having our bond broker at ooba, South Africa’s largest mortgage originator, prequalify them and the thorough credit check will reveal any potential snags.

“This step is particularly important for buyers who are self-employed as banks are very strict about the documentation that they require for a bond application. At this stage I always advise all my clients to avoid making any expensive purchases that could negatively impact their affordability.”

 

Lloyd concludes: “Experienced estate agents will guide their clients every step of the way and as long as they are upfront with their realtors, there should not be too many problems to circumvent.

“I also recommend appointing an accomplished conveyancing attorney who is really on the ball. It is all very well allowing your best friend to handle the transfer, but you could end up being enemies if they make a complete hash of it and that happens more often than I like to remember!

“And, as the transferring attorney and agent work closely together behind the scenes to ensure a smooth transfer, it is always an advantage if they already have an established working relationship.”

 

Source: Private Property

LIC Housing Fin ties up with India Mortgage Guarantee Corporation for home loans

LIC Housing Finance Ltd (LICHFL) on Monday said it has partnered India Mortgage Guarantee Corporation (IMGC) to offer home buyers enhanced loan eligibility and easy loans.

With IMGC’s back-up, LICHFL will be in a position to offer extended loan tenure for borrowers till the age of 75 years. This will help increase the loan quantum and reduce the burden of monthly EMIs for borrowers.

This strategic tie-up will help LICHFL accommodate more home loan borrowers, increase market penetration, besides combat non-performing assets (NPAs), LICHFL said in a statement.

Under the new partnership IMGC will provide LICHFL mortgage guarantee, which is a financial product that compensates financial institutions for losses that may arise from a default on a mortgage loan.

“It will also help LICHFL accommodate more home loan buyers, improve eligibility criteria, extend the repayment period and ease restrictions on the profile of applicants who face rejection related to work profile, workplace and credit history, amongst other reasons, which may be unspecified by lending institutions,” the statement said.

Vinay Sah, MD & CEO, LICHFL said: “LICHFL’s partnership with IMGC will help add more home loan borrowers and mitigate risk across lending categories. We will also be able to tap into the large segment of employees working in SMEs, MSMEs, small entities and self-employed individuals, who have so far been out of the ambit of prospective home loan borrowers.”

Mahesh Misra, CEO, IMGC said: “… IMGC and LICHFL teams have worked closely to design customised products that are aligned to LICHFL’s end-user segment and calibrated expansion strategy….We are confident of scaling up this partnership significantly in a short time span.”

Source: The Hindu BusinessLine

Property firm considers setting up mortgage bank for increased access to housing

Worried that a good number of Nigerians still find it difficult to access mortgage facility to enable them buy or build their own houses, Pertinence Properties, an investment and development firm says it is considering setting up a mortgage bank to give more Nigerians access to housing.

A relatively young property firm that came into business six years ago, Pertinence Properties aims to reach all income levels—low, middle and upper levels with special focus on low income earners who corner not less than 60 percent of their products and services offering.

“That shows you where our heart is; we really want to be part of the solution to Nigeria’s housing deficit. We all don’t have to leave everything to the government”, Sunday Olorunsheyi, Executive Director, Admini/Operatoions at Pertinence, told newsmen in an interview.

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“Part of our long term vision is to own a mortgage bank so that the bank can help our clients buy our properties by giving them the opportunity to pay over a long period of time. We want to make profit as a business but we also want to impact lives”, Olorunsheyi assured.

For Nigeria’s 200 million population, homeownership level is a little above 10 percent while housing deficit is expected to hit 20 million units by 2025 unless there is a dramatic government policy that will encourage more investment in the low-end residential properties.

Experts note that there are two major issues with the housing deficit in the country. The first is lack of a functional mortgage system while the second one is the absence of a social security system in the country. Again, there is no system that is dedicated to funding housing for low income families.

In developed economies, people don’t save to buy houses. They take mortgage facilities instead. But Nigeria does not have a well developed and functional mortgage system. Interest rate on mortgage loans is double digit, making it not in any way different from commercial loans given by deposit banks.

“This means that there is something fundamentally wrong with the country’s mortgage system. There are some basic problems with the mortgage system in Nigeria. One is accessibility and the second one is clarity. Talking about accessibility, you find that when you approach a mortgage bank for loan, they will ask you for things that you cannot provide. So, the mortgage is simply not accessible for those that actually need it”, Paul Onwuanibe, CEO, Landmark Group, explained to newsmen.

He explained further that, in terms of clarity, there is no unified system. There is nowhere the government has published a mortgage rate which the mortgage banks have to use or a mortgage standard or process which the banks have to fit into.

Expectation is that by setting up a mortgage bank  as a property developer with a rich stock of housing, Pertinence will be taking a good number of ‘homeless’ Nigerians out of the crowded housing market.

Olorunsheyi noted, however, that in seeking sustainable solution to the housing deficit, there should be collaboration between the public and the private sector operators, pointing out that the recent signing of the Executive Order 7 by the federal government was a good development as it allows the private companies to provide infrastructure such as roads and rail tracks.

“If this had been in existence long ago, we would have seen a lot of developments in the country. In most of the places we have projects, we are the ones fixing the roads and we spend a lot to get this done.

“We are really doing our best to service the low income group but government should do its own beat. One major challenge we in real estate is documentation which government makes so difficult for developers like us. If technology is driving some of these things, we wouldn’t have this headache because the processes would have been faster and cheaper”, he said.

At the moment, Pertinence is developing The New Badagry Homes which, it says, will be dedicated to its rent-to-own housing initiative for low and mid-income home seekers in that area of Lagos. The New Badagry Homes is designed to rise three floors comprising one, two and three-bedroom apartments.

Source: Businessday

Rising unemployment and its impacts on mortgage affordability

Nigeria has one of the highest unemployment figures in the world and, according to the Q3 2018 report on unemployment rate as compiled by Nigeria Bureau of Statistics (NBS), unemployment in Nigeria has risen from 18.8 percent in Q3 2017 to 23.1 percent in the third quarter of 2018.

The NBS, however, explained, “of the 20.9 million persons classified as unemployed as at Q3 2018, 11.1 million did some form of work but for too few hours a week (under 20 hours) to be officially classified as employed while 9.7 million did absolutely nothing.

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“Of the 9.7 million unemployed that did absolutely nothing as at Q3 2018, 90.1 percent of them or 8.77 million were reported to be unemployed and doing nothing because they were first time job seekers and have never worked before”.

These are frightening figures that are practically incompatible with mortgage lending in Nigeria.  Adeniyi Akinlusi, CEO, Trustbond Mortgage Bank puts it straight that, though the ability of the banks to provide money for mortgage has changed on account of credit challenges in the financial system, mortgage affordability or the fundamentals for lending have not changed.

Technically speaking, there is no mortgage of any form in Nigeria. Because of the commercial interest rate charged, mortgage lenders still anchor their loans on good jobs that attract fat monthly salary, meaning that a mortgage loan seeker is still expected to be somebody in a good job or private business with an assured, fat and regular stream of income.

It remains to be seen how impactful the uniform underwriting standard for the informal sector has been on mortgage lending and homeownership. The income of some of these informal sector operators can hardly be measured and, so, can hardly be controlled in a formal way.

As against the 6 percent interest rate and repayment tenor of between 25 and 30 years, depending on the borrower’s age, mortgage lenders in this country charge between 17 percent and 20 percent interest rate on mortgage loans with a repayment tenor as short as 12-24 months. The tenor also depends on the level of risk associated with either the loan or the borrower or both.

Because of this, the ever-widening housing demand-supply gap can easily be blamed on the commercial interest rate charged on mortgage loans which makes such loans unaffordable to home loan seekers.

The mortgage industry does not operate in isolation of the economy. Certainly as an integral part of the economy, it has to be affected by the economic crisis in the country today.  A good number of people who were in employment before now don’t have jobs again because of the downturn in the economy.

 In spite of this, mortgage operators insist that the fundamentals for lending have not changed, which means that if somebody has a good job with a financial institution or a multinational company, and the pay package is high enough for him to afford a mortgage, the economic crisis has not changed that affordability.

The past few years have seen quite a number of mortgage products aimed at enabling subscribers own their own homes, but these products are yet to help reduce existing housing gap by increasing housing stock. The reason is simple. The products, like the mortgage loans, are unaffordable by those who need them and, according to mortgage operators, those mortgage products are not the ones that will make any impact on housing.

“The mortgage products that we have today are commercial mortgages which the investor wants to recover his money from. It is just like someone else who has invested in any other venture. He has to recover his money because he borrows from the same place like you”, an operator who did not want to be named, noted.

Mortgage products can make impact on housing only when there is government intervention and, anywhere else in the world, there is government intervention to make mortgage affordable to everybody, no matter the income level.

As obtains  in other societies, mortgage could be used to move the economy from being import-dependent to a producing and exporting country and Akinlusi says mortgage institutions need long term loans for housing finance. When there are enough funds to lend to property developers and to home seekers, the entire economy will be stimulated.

By the time there are enough funds in the hands of mortgage institutions for long term loans to property developers, there will be a lot of property construction activities and when these happen, a lot of other activities will be generated and the economy will be better for it.

Engineers, architects, bricklayers, casual labourers and even food vendors will be automatically engaged by a single development in one corner of the city, and it is unimaginable what is possible when there are many of such developments going on at various parts of the country. The long term effect is the development of industries and factories that produce building materials such as cement, rods, roofing materials, wooden materials etc.

Ultimately, this will impact on the wider economy and your guess is as good as mine as to what follows when people have enough capital at their disposal. Definitely, investment is the next line of thought and, depending on the prevailing business environment and government policies, people will invest in many asset classes including real estate which in turn will anything including motor manufacturing.

Determining Whether or Not You Should Refinance Your Mortgage

If you have a fixed-rate mortgage and mortgage rates are falling, it only makes sense to consider trying to refinance at a lower rate. But as with most things in finance, it isn’t always a simple answer. Refinancing can certainly make sense, but it also costs money to refinance a mortgage. Depending on your specific situation, a refinance may actually end up costing you more money instead of saving money.

Adjustable Rate Mortgages

If you have an adjustable rate mortgage and your rate has reset to a higher rate than the initial low rate, it is definitely worth looking into a refinance. The good news is that adjustable rate mortgages can change their interest rates over the term of the loan, and when rates are going down, that can be good. But the real problem is that even so, you’re still likely to find that you’re paying more than you would be with a fixed-rate mortgage.

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The old standard when it comes to home loans, a fixed-rate mortgage can be one of the best ways to finance the purchase of a home. This is because the interest rate doesn’t change over time, which means your payment remains the same. This payment stability is great, but there are times when it can be a drawback.

If mortgage rates fall in the future, you may find yourself paying more interest than what you could get on a current mortgage. This could mean throwing money away towards interest that you could possibly avoid. But the reverse is also true. If you lock in a fixed-rate that’s at a relatively low point, if rates go up in the future, you’re realizing significant savings over others who may be getting current loans at the higher rates.

Consider Costs

When considering whether or not to refinance your mortgage, you want to realistically look at how long you plan on being in the home. Since there are closing costs that may amount to thousands of dollars, you have a look at how long it would take to break even if you were to refinance.

For instance, let’s say a 1% lower interest rate would decrease your monthly mortgage payment by $100. That’s nothing to sneeze at, but let’s also assume your closing costs on the refinance total $3,000. That means you’d need to stay in the house for 30 months just to break even on the refinance. If your plans were to possibly move in three years or less, you can see where a refinance may actually cost you.
Amount of Equity

Another thing to consider is how much equity you have in the home. Most banks will require 20% equity in order to refinance your mortgage. It may still be possible to refinance without that much equity, but you’ll likely get the best deal if you have at least 20% equity.

In addition, if you’ve been living in the house for a while and have built up a decent amount of equity, you can possibly save even more money since you may be able to refinance an amount lower than the original loan amount. This can reduce your monthly payments since you’re now paying back a smaller loan.
Don’t Forget About New Terms

One thing many people forget is that refinancing will also extend the term of the loan again. If you’ve been making payments on your 30-year fixed mortgage for the past 10 years, you only had 20 to go. But if you refinance, if you choose another 30-year mortgage, you’re back to the beginning. But what some people do is actually refinance from a 30-year to a 15-year if they already have a number of years of payments under their belts.

Final Considerations

As you can see, there are a number of things to consider before rushing to the bank. Yes, lower mortgage rates are good, and they can save you money, but it isn’t quite that easy. You need to make sure you’ll actually live in the house long enough to benefit, and determine if possibly changing the loan terms is worth it. Not only that, but your credit history is even more important than ever. If your credit isn’t perfect or you have some negative marks on your report, you may find that you can’t even take advantage of the best rates.

So, if lower rates have you interested in a refinance, it’s worth taking a look at. Just make sure that you’re not being drawn in by the rate alone and that you’re really going to reap the rewards of a refinance.
Source: JEREMY VOHWINKLE/thebalance.com

Kenya: Cash-Rich Buyers Edge Out Mortgage Borrowers

Cash buyers have gained an upper hand in the homes market as banks cut back on loans disbursed to the real estate sector, edging out mortgage borrowers.

Central Bank of Kenya (CBK) data shows that the value of mortgage loans disbursed by Kenyan banks decreased by half a percentage point (-0.5 percent growth) between January and December last year, reflecting a biting credit crunch in the real estate sector that is affecting both developers and buyers of houses.

This is against an 8.7 percent positive growth recorded in 2017 as per CBK data, in an indication of the sharp drop in lending to real estate. The CBK data is reflected in the latest Kenya Bankers Association (KBA) Housing Index, which covers the fourth quarter of 2018.

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The index shows that growth in house prices last year was below two percent as both developers and buyers struggled to get financing. “On the supply side, the market appears to be tilting towards few additional units coming into the market. This is partly attributed to constrained credit to developers. Limited credit is equally binding on the demand side,” said KBA in the fourth quarter Housing Index report released yesterday.

The negative growth in mortgage loans effectively means that repayments exceeded new credit to home buyers and developers, making the housing market a playground of the relatively small segment of cash buyers. Kenyan banks have only about 25,000 outstanding mortgage loans in a population of more than 45 million.

“Buyers show a distinct preference for units in the upper-income segments, but with an observed preference for new units,” says the KBA report, in an indication that rich buyers targeting high-end property are dominating the market.

The choice of location for most buyers is also biased toward the more affluent estates, the KBA report says, with high preference for areas such as Kileleshwa, Westlands, Spring Valley, Runda, Karen and Kitisuru in Nairobi; Nyali in Mombasa and Milimani estates in Kisumu and Nakuru.

Overall private sector credit growth by the end of December stood at 2.4 percent, meaning that real estate was one of five sectors out of 11 that under-performed the average as per CBK classification.

Building and construction, another sector that ties in with real estate, also under-performed the overall credit growth average, at 1.8 percent in the 12 months to December. The KBA report shows that house price growth in the fourth quarter of 2018 stood at 1.49 percent, up from the 1.35 percent growth recorded in quarter three, but lower than the 2.08 and 1.76 percent growth seen in the first two quarters of the year respectively.

The growth last year was generally higher than in 2017, when the economy was besieged by the twin drags of a charged political environment and drought, which affected food security. Businesses and investors also adopted a wait and see attitude in the election year, drying up investments that would have partly filtered through to the property sector.

Other market dynamics have also exposed the property market to the short-term movements in credit availability. Uptake of mortgage, which is long term in nature, remains low on a per capita basis, meaning that many people prefer to take up loans to build their own houses. Developers also rely on credit to put up units in the capital-intensive sector.

Availability of credit allowed developers to put up numerous units in the past, leading to ample supply. Buyers at the same time had easy access to loans, many buying units as investments looking to generate returns through rent. Over time, however, supply raced past demand especially in the middle and high-end markets (housing for the low-end remains in deficit) which meant rental yields were lagging behind buying prices.

The slowdown in building new units has however reversed this trend, a similar report by HassConsult shows, where rental prices rose faster than house sale prices in the last quarter of last year. The realtors said that in quarter four of 2018, property prices in Nairobi and its environs went up by 1.3 percent, while rental asking prices were up by 2.5 percent in the same period.

The government’s plan to put up 500,000 affordable housing units in the next four years, in collaboration with the private sector, could however offer buyers in the lower segment of the market a chance to get on the property ladder. These houses will offer buyers the option of a tenant purchase scheme, which will let them pay for the homes without having to seek loan financing.

Source: businessdailyafrica.com

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