Home Loan News:
Currently, the home loans industry is one of the most attractive into the world. A combination of factors affecting our local industry and foreign currency has attracted a number of international banks to South African shores.
Banks such as Barclays and Standard Chartered Bank from London, England have already entered the market.
But the number of foreign home loan providers is expected to increase even further, which will boost competition among banks as they all wrestle for a share of the lucrative home loans market share.
And to ensure they maintain an edge of their competitors each bank will be forced to offer you BETTER Mortgage products and BETTER Lending rates.
The Business Day predicts that in the short term the following new types of home loans will be on offer:
Interest only mortgages
Homeowners only pay the interest on the bond amount with no capital repayment. This is attractive to buyers looking to buy and sell property over a shorter period and banking that appreciation in house values over the term of the bond will provide equity for repayment.
This is where the bondholder can elect to pay his monthly bond payments into a stock market-linked investment vehicle, the intention being that at the end of the bond term (typically 20 years), the investment fund matures and pays out higher than the outstanding bond.
These products were highly successful in the UK and US during the bull markets but left thousands of bond holders high and dry recently when stock market downturns meant funds paid out significantly less than the value of the bond outstanding.
Special financial vehicles will be put in place to cater for these kinds of investors, although as long as the disparity between rentals and bond repayment exists, this may seem foolhardy.
These bonds are aimed at homeowners who have paid off their properties but wish to raise equity from these assets. Banks pay the owners a negotiated monthly sum and upon the death of the owner, the bank sells the house and retains the difference.
For an initial period (up to five years) homeowners only pay the interest component on the bond. This product is popular with first time home buyers who benefit from smaller up front bond payments but anticipate larger income down the line will enable them to meet larger repayments after the interest-free term is over.
All of these products as well as the additional players are bound to shift the current status quo in the market. Homebuyers and existing homeowners are becoming more educated about financial services and will start demanding more options from existing originators. They will go to those who have the most lenders on their books, have the most knowledge about lenders products, and offer the best rates.
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