Went to a conveyancing lawyer this week to get papers signed on the place I am buying, spent 3 minutes signing papers and 27 minutes listening to the poor guy as he poured out his heart about how rotten the property game is at the moment. Some highlights:
* The bond originators he works with agree that the current rate of successful loan applications is 1 in 25.
* If you can produce a deposit of 40% or more, you are pretty much guaranteed a bond. If your deposit is less than 40%, you have almost no chance of being approved.
* If you bought a second property / holiday house on the West Coast or in the Eastern Cape (PE, EL etc) any time after 2004 you are absolutely phuqued. If you sell it, you might get 50% of what you paid. That's the good news. The bad news is that you're never going to sell it. Not ever. He says the coastal market is beyond saturated.
Bean Counter: Sounds a bit anecdotal. I'm personally aware of several people that obtained 95% and 100% loans recently. Does that mean everyone is getting them?
Hi Neilen, you're right, anecdotes aren't proof of reality; but they also aren't refutations of it. The nice thing about the Interweb is that people are clever enough to make up their own mind. If your experience is that people are getting 100% bonds then that's groovy. Mine is that people aren't, and that's also groovy. I'll tell my anecdotes, you tell yours, and we can all go along happily being screwed by the banks and estate agents.
Interesting BC. This is kind of cool - we have one of our people on the inside reporting back from behind enemy lines :-)
Was looking at the UK stats recently - 10 years ago average house price divided by average national salary was 3.2 - exactly where it should be in a normal environment.
Then houses went up 300% and salaries only went up 40% - and the ratio was totally stuffed. Even now, after the initial house price drops, it is still over 7 - that just goes to show how much downside is still waiting down the line ... and who knows how the embattled debt ridden UK economy is going to survive the onslaught.
The only thing delaying the inevitable is the artificially low interest rates.
@ Anon, really, almost all of it was variations on "I've been in this game since 1977 and I've never seen it this bad." He also thinks banks are sitting on huge liabilities ("A loan of R20-million on a mansion looks way better than a short sale for R10-m with a loss of R10m"), but basically it wasn't stuff we don't already know.
He also told me about one estate agent who knows who is going insane. She works the Cape Flats beat, and is heading for a nervous breakdown after selling and re-selling the same houses four or five times within a few weeks: each time either buyer or seller bales out at the last minute or the deal falls through. Sellers decide they don't want to sell it to a specific buyer (no reasons given) or buyers reveal at the 11th hour that they haven't applied for a bond yet and their credit history is shot to sh*t.
He asked her why she doesn't scale up from the 500k bracket to the 1m-2m bracket, and she explained she'd rather deal with the craziness because at least they get bonds (part of government's home-ownership push). Rather a commission on a sale after five attempts than deal with organized professional buyers and sellers who are getting bonds refused.
As for buyer's remorse, yes, every day. But it helps when I see crappy places going for R20,000 a square meter, makes my R14,000/m2 sting less. So far I think I made the only choice I could (the rental market is still ludicrously overpriced, and I do love my place), but I am no self-deluded property-ladder home-ownerist...yet!
@CJ, yep, I'm a Trojan Home Buyer! I think the point you make is part of a larger catastrophe staring at the West. They've sold their birthright - 400 years of European manufacturing and scholarly excellence - and have nothing left except nuclear bombs. I don't believe it's going to come to that, but at some point the Emperors in Washington and London are going to be revealed in all their nakedness.
I don't for one second believe that people with a good credit record need a 40% deposit to buy a home these days.
I don't know anyone who has bought recently who had such a large deposit. They all had 10% - 20% deposits.
I think the main reason why people are being refused is simply a bad credit record. You can't stop paying off store cards or ditch your car repayments and then expect the bank to help you out later on. Too many people living beyond their means.
I'm a bear, but I think I found my bargain and bought 2 months ago. Can be a mistake, but I'll live with it.
My reasons: -I Live in Plett: Market already crashed by about 40% here. Estate agents going down left right and center.
- I bought for the exact same price my place sold for early 2004
-Rental almost caught up with bond repayments. I only pay about 30% more for my bond than what I would have paid for rental
Me experience: -I've got a perfect credit record -Mortgage repayments about 20% of my disposable income.
-3 out of 4 banks outright REJECTED by bond application. They would only agree with 40% deposit. I don't have that type of cash.
-Only ABSA agreed. and then only with a 20% deposit
-Let me tell you, 20% deposit plus all transfer fees and laywers = a ton of cash. Not that I'm rich or anything, but I can't imagine any of my friends (early 30s late 20s, professionals) comming up with that type of cash money. They all live on credit cards.
So I don't imagine the market shooting up anytime in the next 5 years.
"3 out of 4 banks outright REJECTED by bond application. They would only agree with 40% deposit. I don't have that type of cash"
And there's the rub. It's the same here in the UK. First time buyers cannot get a mortgage with a decent deposit and rate. I had a look this weekend, the monthly repayment on a mortgage with a 10% deposit was 50% more than with a 20% deposit because the interest rate offered was about twice as much. And I can assure you that not many people have £60000 in cash to put down for a decent 2 bedroom flat in London.
-
The "Great Moderation" is being followed by the Great De-leveraging. Homeowners will hang onto their paper gains and won't sell at reduced prices. It's psychologically painful to realise a loss, so people are convincing themselves that their properties are worth more than the market is indicating. At least in London people don't have the American problem of needing to move to find work, but cannot because of negative equity.
Many of these homeowners are upset because of the bankers' ill-gotten gains, but if they look in the mirror they might (but probably wont) see that their own gains were also ill-gotten. How many homeowners who have made money in the last few years will give those gains back, like they expect bankers to give back their bonuses? Though unlike with the bankers, the market will take it back those gains in some form or another.
-
P.S. Newest ABSA house price index is out, Real y/y % change for medium houses are negative again http://www.absa.co.za/absacoza/content.jsp?/Home/News-&-Market-Information/Absa-Publications/Economic-Research/Property-Research
For a young couple starting out, the most wonderful bond is a notarial bond taken out with your own parents/grandparents on both the girls' and the boys' sides.
The money stays in the families and in the end, each spouse generally ends up inheriting what they each payed back anyway. No monthly bond account fees,no bond registration costs, no life insurance premiums....i.e no collateral surety, because the surety IS the property itself.
I'll forever be thankful to my forbears for being my bank and allowing us a loan bearing simple scalar interest. I hope I can instill the same values and do the same for my children, so that they don't need sell 20 years of their labour to a bank to have a roof over their heads.
40% deposit is a good indication of what the banks really think about the future of the property market. I.e., they believe that that the property market can go down by up to 40%.
13 comments:
Went to a conveyancing lawyer this week to get papers signed on the place I am buying, spent 3 minutes signing papers and 27 minutes listening to the poor guy as he poured out his heart about how rotten the property game is at the moment. Some highlights:
* The bond originators he works with agree that the current rate of successful loan applications is 1 in 25.
* If you can produce a deposit of 40% or more, you are pretty much guaranteed a bond. If your deposit is less than 40%, you have almost no chance of being approved.
* If you bought a second property / holiday house on the West Coast or in the Eastern Cape (PE, EL etc) any time after 2004 you are absolutely phuqued. If you sell it, you might get 50% of what you paid. That's the good news. The bad news is that you're never going to sell it. Not ever. He says the coastal market is beyond saturated.
Bean Counter: Sounds a bit anecdotal. I'm personally aware of several people that obtained 95% and 100% loans recently. Does that mean everyone is getting them?
Hi Neilen, you're right, anecdotes aren't proof of reality; but they also aren't refutations of it. The nice thing about the Interweb is that people are clever enough to make up their own mind. If your experience is that people are getting 100% bonds then that's groovy. Mine is that people aren't, and that's also groovy. I'll tell my anecdotes, you tell yours, and we can all go along happily being screwed by the banks and estate agents.
I think the answer is somewhere between the two, and the spread of rejection/passed is a bit more distributed given the circumstances of each case.
come on BC, what did he say for the other 26 minutes?
any buyer's remorse yet?
Interesting BC. This is kind of cool - we have one of our people on the inside reporting back from behind enemy lines :-)
Was looking at the UK stats recently - 10 years ago average house price divided by average national salary was 3.2 - exactly where it should be in a normal environment.
Then houses went up 300% and salaries only went up 40% - and the ratio was totally stuffed. Even now, after the initial house price drops, it is still over 7 - that just goes to show how much downside is still waiting down the line ... and who knows how the embattled debt ridden UK economy is going to survive the onslaught.
The only thing delaying the inevitable is the artificially low interest rates.
@ Anon, really, almost all of it was variations on "I've been in this game since 1977 and I've never seen it this bad." He also thinks banks are sitting on huge liabilities ("A loan of R20-million on a mansion looks way better than a short sale for R10-m with a loss of R10m"), but basically it wasn't stuff we don't already know.
He also told me about one estate agent who knows who is going insane. She works the Cape Flats beat, and is heading for a nervous breakdown after selling and re-selling the same houses four or five times within a few weeks: each time either buyer or seller bales out at the last minute or the deal falls through. Sellers decide they don't want to sell it to a specific buyer (no reasons given) or buyers reveal at the 11th hour that they haven't applied for a bond yet and their credit history is shot to sh*t.
He asked her why she doesn't scale up from the 500k bracket to the 1m-2m bracket, and she explained she'd rather deal with the craziness because at least they get bonds (part of government's home-ownership push). Rather a commission on a sale after five attempts than deal with organized professional buyers and sellers who are getting bonds refused.
As for buyer's remorse, yes, every day. But it helps when I see crappy places going for R20,000 a square meter, makes my R14,000/m2 sting less. So far I think I made the only choice I could (the rental market is still ludicrously overpriced, and I do love my place), but I am no self-deluded property-ladder home-ownerist...yet!
@CJ, yep, I'm a Trojan Home Buyer! I think the point you make is part of a larger catastrophe staring at the West. They've sold their birthright - 400 years of European manufacturing and scholarly excellence - and have nothing left except nuclear bombs. I don't believe it's going to come to that, but at some point the Emperors in Washington and London are going to be revealed in all their nakedness.
I don't for one second believe that people with a good credit record need a 40% deposit to buy a home these days.
I don't know anyone who has bought recently who had such a large deposit. They all had 10% - 20% deposits.
I think the main reason why people are being refused is simply a bad credit record. You can't stop paying off store cards or ditch your car repayments and then expect the bank to help you out later on. Too many people living beyond their means.
I sometimes comment and read this blog.
I'm a bear, but I think I found my bargain and bought 2 months ago. Can be a mistake, but I'll live with it.
My reasons:
-I Live in Plett: Market already crashed by about 40% here. Estate agents going down left right and center.
- I bought for the exact same price my place sold for early 2004
-Rental almost caught up with bond repayments. I only pay about 30% more for my bond than what I would have paid for rental
Me experience:
-I've got a perfect credit record
-Mortgage repayments about 20% of my disposable income.
-3 out of 4 banks outright REJECTED by bond application. They would only agree with 40% deposit. I don't have that type of cash.
-Only ABSA agreed. and then only with a 20% deposit
-Let me tell you, 20% deposit plus all transfer fees and laywers = a ton of cash.
Not that I'm rich or anything, but I can't imagine any of my friends (early 30s late 20s, professionals) comming up with that type of cash money. They all live on credit cards.
So I don't imagine the market shooting up anytime in the next 5 years.
"3 out of 4 banks outright REJECTED by bond application. They would only agree with 40% deposit. I don't have that type of cash"
And there's the rub. It's the same here in the UK. First time buyers cannot get a mortgage with a decent deposit and rate. I had a look this weekend, the monthly repayment on a mortgage with a 10% deposit was 50% more than with a 20% deposit because the interest rate offered was about twice as much. And I can assure you that not many people have £60000 in cash to put down for a decent 2 bedroom flat in London.
-
The "Great Moderation" is being followed by the Great De-leveraging. Homeowners will hang onto their paper gains and won't sell at reduced prices. It's psychologically painful to realise a loss, so people are convincing themselves that their properties are worth more than the market is indicating. At least in London people don't have the American problem of needing to move to find work, but cannot because of negative equity.
Many of these homeowners are upset because of the bankers' ill-gotten gains, but if they look in the mirror they might (but probably wont) see that their own gains were also ill-gotten. How many homeowners who have made money in the last few years will give those gains back, like they expect bankers to give back their bonuses? Though unlike with the bankers, the market will take it back those gains in some form or another.
-
P.S. Newest ABSA house price index is out, Real y/y % change for medium houses are negative again
http://www.absa.co.za/absacoza/content.jsp?/Home/News-&-Market-Information/Absa-Publications/Economic-Research/Property-Research
@ Neilen Marais. 95-100% loans..what a load of bullshit.
For a young couple starting out, the most wonderful bond is a notarial bond taken out with your own parents/grandparents on both the girls' and the boys' sides.
The money stays in the families and in the end, each spouse generally ends up inheriting what they each payed back anyway.
No monthly bond account fees,no bond registration costs, no life insurance premiums....i.e no collateral surety, because the surety IS the property itself.
I'll forever be thankful to my forbears for being my bank and allowing us a loan bearing simple scalar interest.
I hope I can instill the same values and do the same for my children, so that they don't need sell 20 years of their labour to a bank to have a roof over their heads.
40% deposit is a good indication of what the banks really think about the future of the property market. I.e., they believe that that the property market can go down by up to 40%.
Just had absolutely no problem getting a 90% bond approved on a Cape Town southern peninsula property purchased for 1.8 million.
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