“Despite all doom and gloom that is surrounding the residential property market, June 2020 was a record month for property buyers who went online to check what home loan amount they could qualify for,” says Meyer de Waal, who was instrumental in the development of such an online process.
A property buyer can subscribe online and perform their own credit score check, calculate affordability on two different platforms and receive a very accurate indication of a home loan they can qualify for.
Added to such a service is a calculation for a first time buyer of what Government subsidy they will be available to qualify for. The subsidy is then added to the home loan amount; with the result of an increased buying power of the first time home buyer. This subsidy, called a FLISP subsidy [Finance Linked Subsidy Programme] is available for all first time buyers who earn between R 3 501.00 – R22 000.00 and who meets the qualifying criteria.
Should alternative finance solutions such as Rent2buy Finance or an instalment sale finance agreement be required, a buyer can also do such initial pre-qualification through this online process.
LOOKING AT THE NUMBERS
In June 2020, over 9 000 new subscribers made use of this online service.
This is the highest number of online subscribers ever recorded since the platform was launched over 4 years ago.
The most notable improvement was that 31% of all subscribers (an increase from 22% from the annual average) completed the entire home loan pre-qualification process.
This means 2 790 new potential home loan applications.
“Over 90% of these online buyers achieved success in obtaining a final home loan approval, this means that in June alone, the online process generated over 2 511 potential new home loans,” says De Waal.
WHAT DOES THIS MEAN FOR THE PROPERTY INDUSTRY AND ITS STAKEHOLDERS?
With an average home loan value of R 900 000.00, this means that home loans up to the value of +/- R 2 259 900 000.00 were generated.
The value of 2 511 new home loans for the mortgage origination industry amounts to R31 638 600.00 potential mortgage commission revenue.
The value of estate agency commissions on 2 511 property sales of R1 million each [considering a 10% deposit] amounts to R125 550 000.00 potential revenue, calculated at an estate agent commission rate of 5 % on the property’s sale price.
WE HAD TO CHANGE THE WAY THINGS WERE BEING DONE
“The software and online journey was developed some five years ago and at its inception, it was ahead of its time,” says De Waal.
We tested the system internally for one year on our own data we currently had available.
We were able to convince one of the largest mortgage origination groups to test our new technology and 12 months later they signed up for a licence and today, 3 years later, they are our biggest customer.
ONLINE MAKES IT EASIER
The impact of Covid-19 had the positive impact of home buyers requiring an online process to pre-determine the home loan amount they could qualify for.
The traditional manner which still used by many to calculate the affordability and to provide a prequalification indication of eligibility to qualify for a home loan is a very simplistic calculation of income, less expenses multiplied by 30% of the gross income of the buyer.
Our research showed that some services required the applicant to complete sheets and sheets of information to generate a home loan estimate.
We decided we had to change the way that home loan prequalification calculations are done.
Our focus was to enable the a buyer to get a very accurate idea of a home loan that he or she can qualify for in the most timeous, cost-efficient experience that is as accurate as possible, considering all the required algorithms required for a home loan. If applicable, there are also the added benefits of a FLISP subsidy.
The result is an online calculator that provides a very accurate estimate of income and expenses of the buyer. Equally important is incorporating a credit bureau date that factors in the debt exposure as well as the debt repayment versus income ratio of the property buyer.
It takes an online subscriber roughly 10 minutes to get an accurate estimate of the home loan they can qualify for.
The added bonus is that one of our clients found that this online process improved the final home loan approval percentage to almost 90%, compared to the mortgage origination industry average of a 75% approval ratio.
An approval rate of 75 % is usually achieved when a mortgage origination company assists the homebuyer to prequalify the buyer and then submits a home Loan application.
As per Paul Slot of Octogen, 56% of all home loans are declined, considering the statistics provided by the National Credit Regulator.
De Waal is of opinion that the impact of COVID-19 contributed to property buyers working from home with less access to printing and scanning facilities, hindering their ability to upload supporting documents for a home loan application. Financial institutions, for example, do not accept internet printed bank statements and often the property buyer is required to visit the Bank branch to obtain copies of bank statements. This was made particularly difficult during COVID-19 lockdown times; and still poses a problem for a property buyer.
Through this online process, a home buyer can link up with their own bank and extract personal bank statements through this online platform. The bank statements are then incorporated into supporting documents and made available to the buyer. Unique software identifies and categorizes the income and expenses and as well as the income to debt repayment ratio of the customer and provides the home loan amount one may qualify for.
Provision is also made for the uploading of supporting documents for a home loan application, such as the proof of address (FICA), identity documents and proof of income on the online platform.
The property of choice and area to live in or to buy can also be identified.
In line with the statistics provided by Octogen, our experience was that on average 50% of all subscribers on the platforms have problem with either a low, bad or thin credit score profile. Such a profile usually prevents a home buyer to secure a home loan with a financial institution.
The services of Octogen were contracted as they are a leading expert in the field of debt and budget repair, says De Waal.
A comprehensive service is now available to assist declined property buyers with low or bad credit scores to improve same before they continue their home ownership journey.
The increase in the number of subscribers and the increased conversion rates clearly demonstrates that homebuyers are more informed, willing to apply and use an online prequalification process.
More property buyers are interested in having the assurance and knowledge that they will offer to buy a property within their means.
Buyers first want to establish what is their actual buying power before going out to view a property and make an offer to purchase.
ASSISTING PROPERTY SELLERS & PROPERTY DEVELOPERS
“More property developers and sellers are making contact with us to assist them to prequalify their buyers for them, before engaging in a sale agreement,” says de Waal.
“So far we already have 10 developers that are making use of the service and more to be added soon,” says de Waal.
These property developments are:
- Urbika Estate in Boksburg;
- Selcourt R725 000 units and priced R505 000 units in Springs,
- Urban Salt in Salt River Cape Town;
- Conradie Park Development in Pinelands;
- Chapel Towers in Cape Town;
- Emerald Place in Cravenby Estate, Cape Town;
- Garden Cities, Greenville, Fisantekraal in Cape Town – (soon to be launched)
- Garnet Place Parow Western Cape
- Ihlathi development, Parklands North, Western Cape
- 1 Old Oak in Bellville Western Cape
HOW TO DO YOUR OWN ONLINE HOME LOAN AFFORDABILITY CALCULTION
- If you are a first-time buyer who earns up to R22 000.00 [gross household income] register here for a home loan and a FLISP analysis
- For a home loan affordability indicator – click here
- For a rent2buy or instalment sale calculator – click here
Watch a video how to go about, click here.
Meyer de Waal