The inclusion of a mortgage bond calculator on our brand new website (www.rawson.co.za) will, it is hoped, lead to the general public making their initial bond pre-qualification calculations more realistically, says Bill Rawson, Chairman of the Rawson Property Group.
The bond calculator could - and should - added Rawson, also lead to current bond payers taking the ‘wholly commendable’ step of increasing their monthly bond repayments over and above the stipulated amount.
“In the past, this was always the traditional reaction to low interest rates,” said Rawson. “In today’s far tighter economic conditions it seems that home buyers are less willing to take a little pain in these matters – which is regrettable because the relatively small increases in monthly bond payments lead to huge long-term savings.”
Mike van Alphen, the National Manager of our bond origination division, Rawson Finance, has, said Rawson, recently pointed out that if a home owner, who took out a fluctuating R800,000, twenty year bond in 2008 at 15,5% had continued to pay at that rate, he could reduce his total payment time by an estimated 10 to 11 years. Right now, in the four years since taking the bond he would already have saved R140,000 in capital and cut 24 months off his repayment period.
“There are, therefore, few better ways for the man-in-the-street to accumulate wealth than by paying high on his bond repayments,” said Rawson.
In countries which believe that home owning is the way to increase the individual’s capital and stabilize society, continual incentives are needed to encourage home buyers, said Rawson – and the most obvious of these is tax relief for bond payments.
“All of us in the industry recognize that this can be an expensive measure and it is one which many states simply cannot afford, and we have to accept that at lower income levels so little tax is paid that tax relief here has little or no impact.”
“Nevertheless, the first time home buyers have to be incentivized in some way and it would be helpful if the government talked to the real estate sector on this matter. Perhaps we could look at the safety net concept once again.”
Tax relief for those who invest in a certain number of residential units for rental purposes (possibly five, six or more units) is definitely a measure worth supporting, added Rawson. It stimulates development and by providing more stock, encourages competition in rentals.
Currently, said Rawson, a 5% tax reduction is given on up to 55% of the total cost of the property. It would, he said, be beneficial if this could be raised to 6% on 75% of the total cost. Rawson points out that incentives of this kind work to the advantage of SARS in the long-term because if and when the property is sold, the tax write-off is included in the Capital Gains Tax.
Also worth discussing, said Rawson, is the banks’ apparent enthusiasm for short-term loans rather than bond finance, where, he said, “admittedly the approval rates are now creeping upwards”.
The Minister of Finance, said Rawson, has indicated that he will be seeing the banks about stimulating mortgage bond lending.
“This is obviously highly desirable: personal loans in most cases are spent on short-term consumables such as: motor cars and electronic and household goods and they inevitably lead to our unhealthily high debt-to-income ratios.”
“By contrast, a home is an appreciating asset. In a culture such as ours’ where property has acquired currency status, its ownership has to be boosted in as many ways as possible.”
