So managing your home loan and prioritise your debt

Pretoria:  South African homeowners are trying to do a better job of keeping up with their bond payments and we think this is being helped by a perception of an improving housing market and of course the constant low interest rates that are making it easier to refinance and also that loans are getting a bit easier to get.

The percentage of bond holders at least two to three months behind on their payments fell in the third quarter to 5.41 per cent, the lowest point in more than three years, credit reporting agency TransUnion in the USA stated and we in SA seem to be leaning that way as well. I look forward to Loos report and Rode reports at year end.

In the USA, the mortgage delinquency rate has not been this low since the first quarter of 2009. Still, it remains well above the 1 per cent to 2 per cent average historical range, an indication that many homeowners still are struggling to make their payments.

But, here back home in SA, the question is: have your finances turned the corner?  Well, many homeowners changed the way they prioritize their financial setup after the value of their homes crashed with the world housing crash. I wonder if this has changed yet?  I think not.

We know that people used to pay their bond first, and now they pay their cars and their credit cards and then accounts before their home loan.

Even so, some owners are benefiting from the gradual turnaround in housing this year as we see prices stabilise, interests rates remaining low and generally a better feel out there.

US home prices jumped 5 per cent in September compared with a year ago, the largest year-over-year increase since July 2006, according to data provider CoreLogic.

Generally speaking, higher prices help bring down the number of homeowners who owe more on their bonds than their homes are worth, potentially making it easier for them to lower their monthly payments by refinancing.

And interest rates remain near record lows, making it possible for more homeowners to qualify for refinancing and normal financing. The average rate on a 20-year mortgage was 8.5 per cent land has remained below 9% all year.  Awesome.

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HOLIDAY TOWN HOUSE PRICE PERFORMANCE

Are we finally seeing decent prices on holiday homes
According to FNB's John Loos

Due to the non-essential nature of a holiday home, holiday home buying has taken more of a back seat to primary residential buying during the tough financial times of recent years. Now, in 2012, after a very significant real price decline in the FNB Holiday Towns Index, some return to price stability may be being observed.

The holiday property market has had major challenges in recent years. After the 2008/9 recession South Africa’s household sector has been under significant financial pressure, and the sharp rises in municipal rates and utilities tariffs related to housing must surely have caused a good number of aspirant holiday home buyers to rethink the merits of owning a 2nd home for leisure purposes.

The FNB Estate Agent survey appears to tell such a story. Whereas back in early-2007, prior to the recession, the sample of agents surveyed estimated that 5% of home buying was for holiday home purposes, in recent years the percentage has ranged between 1% and 3% of total buying. In the 3rd quarter survey of 2012, the percentage of buyers buying for holiday home purposes was estimated at 2%, unchanged from
the previous quarter.

Therefore, our agent sample certainly doesn’t point to a strong holiday buying market, but one that is slightly better than the low of Winter of 2011 where only 1% of buying was believed to be for holiday purposes.

However, it is possible that after a major downward correction in real holiday town home values, the combination of holiday home buying being slightly up off the low point, combined with improved price realism, may have led to a move towards real price stability in holiday town markets.

For non residents buying in SA - is great now and doing money transfers to South Africa has never been easier with free money transfers.

Transfer money to SA from UK and Eurozone

• From the UK comes the news that the Bank of England backed away from stepping up its program of government bond buying on as the economy starts showing signs of growth with expected increase in  lending.
• On the EU front -  European Central Bank President Mario Draghi said that the ECB was primed to buy troubled Eurozone bonds when conditions were right and that this had already calmed financial market tension - hopefully this remains true.
• Still in the EU - The Euro had gained strength because it seems the ECB were to progress with financial stimulus and calm the nerves of investors. Remember there was no rate cuts or monetary easing, the ECB president said he was “Primed to buy troubled Euro bonds when conditions were right.” The fact he mentioned this has helped the Euro maintain its gains across the board. 

So time to use your Euros or UK pounds and invest in SA  so transfer money to SA.

Interest rate and tips for your home loan!

“An interest rate cut should have some mildly positive impact on the property and home loans business.”

well that is true to some extent but you cannot just rely on this.

So some simple but sound tips for householders and the man in the street:

STAY WITHIN YOUR BUYING MEANS -  Although interest rates are at historical lows, home buyers should buy well within their means, in order to make provision for a significant degree of interest rate increase in future, these will come somewhere and somehow.

Watch the external costs - Costs related to housing such as municipal rates and tariffs are escalating at rates significantly higher than consumer price inflation.

While it is difficult to predict when these rapid increases will subside, given South Africa’s infrastructure funding needs, this makes it even more essential to borrow well-within one’s means, and ensure you read the meter and watch the leaks.

Peg your rate - Besides buying well within your own means so as to be able to absorb future interest rate hikes, because they will come, fixing interest rates is another way of being better prepared for this eventuality.  However your fixed rate will be quite a bit higher than prime.  So plan for this

Use it or ,lose it.