Quantitative Easing - Does it work?????

So time for a bit of thought on such a romantic day!  happy st valentines day to you and the bank of England!!!

Central banks try to raise the amount of lending and activity in the economy indirectly by cutting interest rates. Lower interest rates encourage people to spend, not save but when interest rates can go no lower, a central bank's only option is to pump money into the economy directly. That is quantitative easing (QE).The way the central bank does this is by buying assets - usually financial assets such as government and corporate bonds - using money it has simply created out of thin air. The institutions selling those assets (either commercial banks or other financial businesses such as insurance companies) will then have "new" money in their accounts, which then boosts the money supply.

In March 2009, the England Monetary Policy Committee (MPC) announced that it would reduce Bank Rate to 0.5%. The Committee also judged that Bank Rate could not practically be reduced below that level, and in order to give a further monetary stimulus to the economy, it decided to undertake a series of asset purchases. Between March 2009 and January 2010, the MPC authorised the purchase of £200 billion worth of assets, mostly gilts – UK Government debt. The MPC voted to begin further purchases of £75 billion in October 2011 and, subsequently, at its meeting in February 2012 the Committee decided to purchase £50bn to bring total asset purchases to £325bn but doubts linger over how well its policy of quantitative easing is working

A Bank of England report into the effect of the first round of QE suggested that the measure had helped to increase gross domestic product by between 1.5% and 2%, indicating that the effects of the programme had been "economically significant".  QE worked in 2009. Deflation in the cost of living (the all-items retail prices index measure) peaked at just under 2 per cent (i.e. the price level fell about 2 per cent) in mid-2009. The money stock would have fallen something like 5-10 per cent without QE. The plan to lower bond yields has obviously worked with the 10yr bond falling by 39% in the past 3 years. QE works by the Bank buying bonds in the open market with the demand causing the yield to fall and their attractiveness as an investment to fall as well. This has allowed the UK to maintain a level of bond auctions, and public debt, without too much trouble from the ratings agencies or any vigilante bond traders.

From an inflation point of view the result is less certain. Inflation in the UK has remained sticky throughout the crisis with CPI remaining above the Bank’s 2% ± 1% target since January 2010

The banks get tough in their home loans lending

100% home loans - diminishing as we speak - but still possible.

Interest rates of -2% below prime - forget it - you are lucky if you get prime and it will get worse for a while.  But our rates are at their lowest in 30 years so that's great news.

1  * Bounced cheque on your last 3 months bank statements - better you wait until the next three months cycle before you apply for a mortgage.

Adverse on your credit report - get it sorted and get it removed and get letters and even then you are bound to be declined by the banks first.

A Judgement - get someone else to buy the house because you are just not going to get a loan, unless you own your own bank.

Get a credit check if its the last thing you do and understand it.

Self employed - well you need about three tonnes of documents including 3 years financials, 6 months business bank statements, blood tests and 6 financial sponsors - very tough at present.

If you earn as a salaried employee an amount of between R 10 and up in overtime, commission you better get your 6 months payslips, commission statements and letters from your company proving that you earn occasional extra income otherwise your whole profile will be seen as suspicious and you WILL be declined.

if you are non-res, non SA type make sure that you have approval to bring your money in, an excellent money transfer service, attorneys that are jacked up and 50% is the max you will get and probably from 2 banks only.

So folks that's the good news....and its bound to get better.

Want a home loan - well use a mortgage originator because they are the only people who will tell you like it is as they earn their hard earned living from this business.

So how to I get a bond and get an interest rate?

The but bottom line for the banks granting a bond to you

you need to provide

1. all the required and correct documentation – if any deviation unless there is an awesome reason they will not proceed.

2. Your credit record needs to be clean else they will

a. Either decline

b. Offer you less

c. Load your interest rate

3. You need to meet each individual banks criteria – which they change regularly or as the market forces move along and we are briefed on these as these changes happen

4. The same criteria is in place whether you go direct to the bank, have a private banker, use an originator, have been with the bank for 20 years or 1 month.



Interest rates



1. There is presently no rate war between the banks as the rates are at their lowest in 30 years

2. Even if there was no one would admit it – but we pick up the trends as we service all banks

3. Rates are affected by:

a. Amount of deposit – the more the better

b. Clients credit rating, externally at the bureaus and internally at the bank – clean = better

c. How long you been employed

d. Type of employment

e. Self employed versus employed

f. Type of loan – vacant land versus home (vacant land carries a penalty at present), holiday home, commercial etc

g. Age and marital status

h. Bank client who deposits salary at the bank or non-client

i. Paying by debit order versus salary deduction

j. Offering surety such as cash based policy

k. Insurance on your life on the bond

l. Whether you pay more than your bond monthly repayment requirement or not – early payer

m. And other factors which the banks have built in their scoring systems

4. All rates are determined by the banks scoring mechanisms and systems which they have spent R millions on to give them an accurate assessment and hence a score

NEDBANK - A GREAT Balancing Act - to get a Home Loan!!!!

Well I am impressed when I hear a  credit manager tell me what is needed to get a home loan - open policy - nice to see Nedbank .

Three pillars of strength needed folks - thats all so YOU WANT A HOME LOAN then -

RISK - You need to make the bank feel that all the risk is not only on their shoulders but also on yours.  So what do you need for this - A deposit reduces the banks risk and adds yours into the pot, so start saving.  Be a smart finance manager, so manage your accounts and VERY VERY important PAY YOUR ACCOUNTS ON TIME or in ADVANCE.  Never pay late.  Nedbank, like most banks have an internally risk rating of you as a client, so contact your Mortgage Broker and get your risk rating in advance, THEN apply for a mortgage only.

SECURITY - Well no one wants to be left hanging and neither do the banks and this is not particular for Nedbank only.  So make sure what you buy is acceptable for the banks to finance.  If a sectional title flat or apartment get the body corporate financials and make sure the body corporate is in the black (positive cash flow), not to many arrears and outstanding levies, and up to date paid insurance.  Then the bank will feel comfortable as well.  If you have just started a job, make sure you supply your job contract together with a payslip.  Its all about feeling secure. 

Ask your broker.

AFFORDABILITY  - If you want to be declined then dont justify what you can afford.  Remember 30% of your income is the MAXIMUM that the banks will allow you to spend on your home loan.  THATS IT!

DO NOT INFLATE YOUR SALARY AND INCOME! OR DEFLATE YOUR EXPENSES! If it is unrealistic the banks will automatically add an additional 25% to your expenses and once declined on affordability it is very difficult to convince credit managers otherwise.  IT IS TO PROTECT YOU afterall!!!!!!  Ask your mortgage advisor to assist you before you have a bash yourself.

Lovely, easy and A GREAT BALANCING ACT!

South African Property - June/July Market Summary

BOOM

It's been chaotic and exciting to say the least...

The last month in South Africa has been a shock to the home loans and property barons and I think it's definitely worth a nice little summary. For those of you who missed all the excitement, well, here's your chance to catchup!

To summarise it all, I'd say the 3 major impacts and stories have been the following:

The National Credit Act
Rudco Financial Services
Bank Charges

The National Credit Act

First was the property boom, prices rising, interest rates dropping then, WAM BAM, thank you MAM, here comes the National Credit Act. All of sudden, investors who were purchasing homes by the dozen every month, found out that they could no longer afford (REALLY AFFORD) anymore property. Banks started declining bonds left right and centre because people were hiding money from them and claiming they were earning R60 000 a month when there statements were only showing R20 000 worth of income.

To top it off, the interest rates went up! WHAT THE HELL! Well, it's not all bad. What it means is that the banks and financial institutes can no longer loan money to people who cannot afford it! It's going to curb credit lending which is great for the economy, LESS DEBT, plus all those people who've been hiding money from the TAX MAN, will no longer be able to do it with property unless you buy it cash. Either that or you need to start showing the banks where that money's coming from.

Wizard says, YAY to the National Credit Act!

Rudco

Now here's a story that's been causing a stir. Rudco Financial Services came out this week with a special, "The first 1000 people to sign up with Rudco get their home loans at 6% interest". Talk about a stir. It's had the home loans companies up in arms and it's got people asking ALOT of questions.

Firstly, well done to RUDCO, it's caused such a publicity STIR that I'm pretty sure they've already got their first 1000 deals signed up. The reason Rudco got everyone talking though was due to a couple of "suspect" things that bugged us.

1. Where is there financial backing coming from? Why won't they disclose it?

2. They're not registered as a financial institute!

3. What happens if they go under? What happens to their clients?

4. Offering home loans @6% gives clients the false impression that they can afford that R1 000 000.00 property. If Rudco go under, and the client needs to switch to a bank. Their interest rates are going to jump to 13%. WILL THEY STILL BE ABLE TO AFFORD IT!

All in all though, Wizard do wish Rudco the best of luck. Banks needs competition, maybe it's the first step!

SA Banks and their DAMN Bank Charges!

This is something that just pisses me off! The banks and their bank charges. Now I can understand bank charges. I understand that we have the highest ATM crime rates in Africa (or the world for that matter) and that banks need to replace all the broken ATM's. Let me tell you though that paying R15.00 for every debit order that comes off your FNB cheque account is pathetic! I also believe that paying R20.00 to draw money from an ABSA ATM vs a FNB ATM is absurd!

The banks in this country are not making it easy for people to live! They're not helping South Africans and they're not helping the MAJORITY of South Africans (underprivileged) in making this a country to want to stay in!

Read this article that STORM posted, read it carefully and you tell me what the hell the banks in this country are thinking!!!!!

http://sa-property.blogspot.com/2007/07/are-banks-charging-you-more-than-they.html

But ladies and gentlemen. Apart from that, we love this country!
You cannot say that this isn't an exciting country and an exiting time in South Africa.

Thanks again to all the readers and the input everyone has had on our BLOG over the last 3 months.

WizardMan OUT!
I'm OFF TO DULLSTROOM!

Are banks charging you more than they need to with bank charges?

DID YOU KNOW?

Bank charges make up 40 % or more of the banks revenues!

Where else in the world does an entry level employee pay more in bank charges than he does in tax?

An average person earning R2800.00 per month will pay 4 % of his income in bank charges per month. Can banks even explain what we are paying for. No explanation? Nobody I've have spoken to knows exactly what they're paying for in bank transactions because of the way banks reflect their charges and the way they structure their packages. Over and above this, are there hidden costs that we are not aware of?

In the US, it is so easy to open a bank account, and even better there are no charges involved. You receive FREE atm withdrawals, limited number of cheques, electronic funds-transfer payments, and Internet banking. Amazing!

In South Africa the average individual pays +/- R1800 on charges per annum on a normal current account. Take penalty fees for example, why are these so high? If you have an unpaid on your account due to whatever reason, you end up paying astronomical fees for this, e.g +/- R130,00. This is ridiculous as you go even further into debt. I think that these fees should be cut and rated on how well you conduct your account.

If for example you run a very good account and then suddenly have an unpaid, there should be a good reason for this and you should not be penalised. But if you have constant unpaids then they should look into this and charge you accordingly.

Lets look at Pensioners and students. These fees are beyond ridiculous, they earn peanuts as it is, why take their few pennies? I think that the banks should if they need to charge a fee for these clients, why not charge them a flat fee.

Banks claim to beware of these problems, but are they really?

Here are a few packages offered by the 4 major banks!




Silver Package:

Gross annual income (R60 000 / R120 000) - Monthly cost R99 for 25 transactions - thereafter R10 per transaction.

Gold Package:

Gross annual income (R120 000 / R300 000) - Monthly cost R139 for 35 transactions - thereafter R10 per transaction.

These packages include cash withdrawals, account payments, debit orders, electronic fund transfers etc, and only apply to Absa ATM's.

For more info you can contact your nearest Absa branch.





Silver Package: Monthly income of R60 000 or more
Gold Package: Monthly income of R140 000 or more
Platinum Package: Monthly income of R350 000 or more

Fee Manager option:

Option 1: R45 for up to 6 transactions, thereafter R9 per transaction.
Option 2: R85 for up to 12 transactions, thereafter R8 per transaction.
Option 3: R135 for up to 20 transactions, thereafter R7 per transaction.

These cover all standard transactions such as debit orders, cheques etc. and excluding mini statements, penalty fees or transactions done within the branch.

Electronic Service option:

Mandatory monthly fee of R10- plus charges capped at R75 a month.

This includes transactions as such balance inquires(electronic) prepaid purchases(electronic)etc.

Fees are capped at R75, total monthly charge for electronic transactions will be the lesser of the fees for transactions or R75.
This option does not include withdrawals from other banks only FNB, penalty fees, payments(cheques, branches, bank cheque) etc.

For more info contact your nearest FNB branch.





Everyday Account

Gross annual income R36 000 or more

Cost : R85,00 or R55,00 (if client has a Nedbank credit card and home loan paid by debit order)

This include the following: Annual cheque and garage card fees, debit orders, all statements, cheque books etc.

One free cash deposit a month, (ATM / Branch) thereafter R1,10 per R100,00 or part thereof.
One free cash withdrawal a month, (Branch) thereafter R1,10 per R100,00 or part thereof, minimum R16,00.
Four free Nedbank ATM withdrawals a month, then R7,00 a withdrawal.

This option does not include transactions from other banks, cheques issued, penalty fees.






Everyday Account

Same option as above except that this package will cost you R42 000 annually.

For more info you can contact your nearest Nedbank or Old Mutual branch.





Achiever

Gross annual income R36 000 or more

Cost: R110

Includes: 10 cheques, 8 Std bank cash withdrawals, 3 branch withdrawals, 2 ATM cash deposits, 20 electronic transactions (debit orders, stop orders, electronic inter-account transfers, account payments) 20 Mastercard cheque card purchases, unlimited balance inquires, mini statements and prepaid top-ups via electronic channels. Annual cheque card fee and Internet banking subscription fee.

This excludes any transactions from other banks and all other fees not listed above.

For more info contact your nearest Standard bank branch.

As the country's major banks announce their revised bank charges for the new year, it is a good time to re-evaluate how much you pay in on bank charges per month and where you can get the most value for your money, and of course the best service.

The key to choosing the best option for yourself lies in whether you will exceed the set number of transactions and, if so what the cost of the additional transactions will be and whether you will need to do other transactions that are not available in the specific package and what the additional cost will be thereafter.

Also remember that if a package fee includes you having a home loan with that specific bank you need to weigh up the pros and con's of saving a few rand on the packages they offer you or taking up another banks package, spending a bit more on bank charges, but saving more on your home loan.

So Remember it is up to you to make your money work for you.

TOWARDS A FREE AND EQUAL ECONOMY FOR ALL!

Some Good reference sites for this artcile are:

Bankmonitor South Africa
Bank Comparison Site