Frequent short-term borrowing could be a black mark against you when applying for a home loan.
“The number of short-term loans you burn through may warn banks or other lenders that you’re having trouble managing your finances,” says Renier Kriek, Managing Director at disruptive home finance business, Sentinel Homes.

That can make them reluctant to fund your dream of owning your own property.

Easy debt
While all debt should be managed responsibly to maintain a good credit score, for many South Africans, short-term loans are becoming an addictive way to make ends meet. Or, to fund luxuries they can’t afford but refuse to live without.

It’s tantalisingly easy to get hooked as well - you don’t need to put up collateral to get one and you don’t have to explain what you’ll use the money for. Also, some like to think that if they fall behind on their repayments, they can simply submit themselves to a debt review.

Introduced by the National Credit Act, a debt review is a legal process for someone who is over-indebted to settle with their creditors by paying what they can afford. A registered debt counsellor will review their finances and help them create a repayment plan.

The hidden costs
Unfortunately, there’s no such thing as a free lunch. Short-term loans can carry much higher interest rates than other types of debt - up to 5% per month, which is around 6 times the current prime rate. “So, the more you borrow, the worse off you become financially and the more likely you are to default,” says Kriek.

That debt review “solution” you are being offered isn’t necessarily a safe bet either - because it will cut you off from any further credit provision for as long as it takes to remedy your past bad behaviour.

Even if you’re not a repeat offender, firms offering debt counselling will often assure you that your debts will be forgiven, the slate is wiped clean and all will be forgiven. “In the real world, lenders could deny your home loan application simply because you needed debt review in the first place,” says Kriek.

Alarm bells
Short-term or unsecured loans are not an evil to be avoided entirely. They’re actually good for the economy when used responsibly.

However, they’re also a red flag to home loan providers when they feature strongly in your financial history, even if you’re keeping up with repayments.

Credit providers use various risk models to identify patterns in our spending behaviour - good and bad. They know what financially responsible and irresponsible spending patterns look like.

“Frequent short-term loans - with or without defaulting - are a risky pattern that implies an individual does not manage debt well, and that is something a home loan provider does not want to make a long-term investment in,” says Kriek. “The ability to delay gratification is the underlying attribute that responsible users of credit have, but there is no easy way to quantify whether a particular applicant possesses that trait – the number, frequency and type of unsecured credit transactions is a useful proxy in that regard.”

Good debt
So, what is the right course of action, especially if you already have short-term loans?

First, understand that short-term loans have their place but are seldom necessary. Stop using them and make a plan to pay off the ones you already have. Then get to work on building an emergency fund of cash that can only be touched for true emergencies, so that you will not need unsecured debt in those cases.

Second, work on saving for luxuries such as holidays and large capital purchases. You will be paying monthly anyway, whether you take the credit or save, but in the saving scenario interest will be working in your favour rather than against you. Delaying the gratification of that large purchase is difficult, but no-one said adulting would be easy.

Finally, if there is no other option, opt for “good” debt as far as possible. Buy your clothes, furniture, appliances, groceries and other items using store credit if you absolutely cannot do without. You don’t have to buy things you don’t need to build a good credit score. Everyday items and normal household purchases are fine.

“Credit providers’ risk algorithms generally look favorably on consumers who start their credit journey with store debt because it fits the pattern of responsible spending, provided you pay your accounts on time, of course, and do not spend near or above your credit limit,” says Kriek.

Long-term planning
Eventually, most people end up before a home loan provider in the hope of buying a house they love. But lenders are profit makers and risk reducers, so it’s important to think like they do.

Are you a good investment? Will you repay your home loan on time and in full? The lender’s modern analytical systems - often powered now by artificial intelligence - evolved to answer questions like these and exist to protect their owner from risk.

“Short-term loans that literally fund your lifestyle can easily sway the algorithm against you,” says Kriek, “especially if you are funding luxuries or nice-to-haves from easy debt rather than developing the discipline of saving.”
 
ENDS

Nothing is certain except death and taxes, the saying goes. Property owners must plan for both if they want their home and other assets to pass smoothly to those surviving them.

“Structuring your estate smartly, or at least having a will in place, will spare those grieving your passing further hardship, both emotional and financial,” says Renier Kriek, Managing Director at Sentinel Homes.

Any decision a property holder makes in this regard should be guided by advice from a professionally qualified financial and estate advisor. However, Kriek offers a good overview.

Basic factors
When planning for death, property owners need to consider two main factors.

The first is how to structure their estate so they don’t directly own anything when they die. This is usually only appropriate for those with large estates and minor dependents, or businesspeople who risk having their assets attached to repay creditors, but may not be the best tax planning advice for most consumers.

The second concern is their marital status. Are they single, married in community of property, or married out of community of property either with or without accrual?

“Each marriage model will affect the distribution of an estate differently,” says Kriek.

Make a will
Without a will, intestate rules apply to the deceased estate, as prescribed by the Intestate Succession Act 81 of 1987.

These rules determine which surviving relatives will inherit what portion of the estate, from the surviving spouse and descendents down to distant blood relatives.

The Act’s complex requirements could result in, for example, a spouse losing their family home to ensure they and each child receives an equal inheritance.

So, for anyone having assets such as homes or other fixed property and especially those property owners who have dependents, it is always best to have a will professionally drawn up to make sure assets will be distributed in a manner desired by the property owner.

“Again, the marriage model will affect how the will should be structured,” says Kriek. “Estate planning with a licensed and regulated professional is also likely to include investments and insurance, proper planning of which remain essential.”

Leverage trusts and companies
The beginning of the article mentioned not owning property at death, which is a desired outcome for some consumers due to tax, risk or other reasons. Avoiding direct property ownership while still enjoying the benefit of owning property can be accomplished through the use of a trust or company.

However, the cost of these vehicles makes them best suited to more affluent people who have larger estates and minor dependents, or entrepreneurs.

If property is transferred to or bought through one of these entities, the entity owns the asset. So, dying is of no consequence, if one’s dependents are the ultimate beneficial owners of the entity, such as through being beneficiaries of a trust.

The property held by a trust or company rather than in a person’s own name will not be subject to estate tax or capital gains tax at death, and typically cannot be attached by the deceased’s creditors. Only income that is earned through that property is taxed at a rate prescribed for the specific type of entity in addition to capital gains tax if the entity elects to sell the property concerned.

“Which structure is best suited to an individual’s needs must be determined with the help of a trusted estate planner or financial manager,” says Kriek. “Do not assume that the more complicated structure, using entities such as trusts and companies, is the “better” and therefore most appropriate one.”

Address affordability
Unfortunately, structuring cannot save a property that surviving family members are unable to afford, whether it is bond repayments, rates or levies, trust administration fees, corporate accounting fees, or other expenses. This could happen if a surviving spouse does not work and cannot raise the required finances to settle existing debt against the family home or other property.

An estate might be able to cover its own costs, for example, where income is derived from rental properties or the entity receives cash bequests from the deceased person. Otherwise, a will, trust or company should be backed by some form of insurance that ensures funds are available after the owner’s death.

“By following this rough guide and using a properly qualified and licensed financial planner, you will allow your loved ones to continue enjoying the life you worked so hard to provide them with,” says Kriek.

ENDS


MEDIA CONTACT: Rosa-Mari Le Roux, [email protected], 060 995 6277, www.atthatpoint.co.za 
For more information on Sentinel Homes please visit:
Website: www.sentinelhomes.co.za
Facebook: Sentinel Homes

The single woman’s guide to buying their first home
Almost 60% of South African homes are owned or co-owned by women, and women are increasingly buying property without a spouse or partner.

“Many will be first-time buyers who are hesitant to commit because they feel they are unable to afford such an investment,” says Renier Kriek, Managing Director at Sentinel Homes.

As someone who deals with single or unmarried property seekers regularly, Kriek offers some good advice to help you find the best way to finance your purchase.

Rise of the female homeowner
As modern family dynamics change, one demographic indicates that more than 40% of South African children now live with their mother only. This is greater than the number residing with both parents or another related adult.

“Traditionally,it is believed that homeownership is one way to create the stable and secure setting that is conducive to childrearing. This cultural attitude, coupled with demographic changes, may explain the surge in women buyers,” says Kriek.

Yet, buying a property on a sole income can be daunting for anyone, regardless of gender, especially since property prices have risen faster than salaries over the past 70 years.

However, Kriek warns that once the practical results of the election have become clear and the long-anticipated interest rates cut has arrived, pent up demand will surely unleash a buying spree that sends property prices skyrocketing. Buying now, before the market rises, is probably preferable to buy now, especially for those buyers who must stand on their toes to buy a property in the first place, such as single men and women who only have the benefit of one income.

“With the current buyer’s market, it is the ideal time to invest in a home that’s still affordable,” he says.

Buying a home on a solo budget
To find the best property, you first need to decide how you will pay for it. Here are some great tips to consider:
Your primary concern is how much you can get together for your investment. This starts with an honest assessment of your financial position and credit record, since you will likely need to apply for a bond, which may require a substantial deposit.

Then, do your research to discover alternative financing solutions. For example, the government’s First Home Finance subsidy offers qualifying applicants free financing that can be combined with other housing products, like mortgage loans. The options are out there, you just need to find them.

However, don’t be tempted by shady loans that make getting into debt easy but whose crushing rates will eventually leave you penniless - and maybe even homeless.

Next, implement sensible lifestyle changes. Now is a good time to start paying off lesser debts to free up disposable income and improve your credit rating. Also ask yourself which expenses you’re willing to live without, like your Netflix subscription or weekend takeaways. It all adds up.

Ask your employer if they provide assistance with property purchases. For instance, some banks may offer certain staff home loans with low or no deposit, and some employers may offer formal or informal programs of assistance to those who wish to buy.

Most importantly, be aware that every property comes with initial and monthly costs, some obvious and some hidden. Upfront, you’ll face transfer and registration fees, and transfer duty. Then, there are the ongoing and adhoc costs, such municipal costs, sectional title levies and consumption costs. You are also responsible for home maintenance and repairs, and other infrequent expenses that don’t normally affect renters. Make sure you work these into your calculations.

Getting value from property
Now, consider the best type of property to buy. Most single people prefer a lock-up-and-go home, like a property in a sectional title complex. Currently, sectional titles make up more than half of the properties in the country due to their excellent value-for-money proposition.

For instance, they allow you to enjoy many of the benefits of a free-standing property, albeit in a communal setting. The cost of security, gardening, property maintenance, a swimming pool and entertainment areas, and more, is shared among owners, making these amenities affordable and accessible to each.

“Given the demand, this is also the easiest property to sell when your lifestyle needs change, again making it the best for a first-time owner,” says Kriek.

If your employer is open to you working remotely, or you can run your own business remotely, you may find better value in rural areas or the countryside. In such regions, your bond might be cheaper than your current rental, so keep an open mind. 

Also, determine if the property could somehow pay for itself. A granny flat or spare room that can be rented out for additional income certainly helps to ease bond repayments.

Lastly, buy with the end in mind. One day, you may want to sell your starter home for the highest price you can get. To ensure its value keeps pace with the market, look at the basics most buyers demand, such as its proximity to schools, shops, hospitals, daycare and similar amenities. Also, try not to buy property in declining areas – low prices may in fact be a value trap.

The rewards of due diligence
As a single woman, who may also be a mother, your first home might seem like a distant dream, but it could be more affordable than you think.

“As long as you are willing to do your homework, you might be surprised at what is possible and how soon you can have what you want,” says Kriek.

ENDS
 
MEDIA CONTACT: Rosa-Mari Le Roux, [email protected], 060 995 6277, www.atthatpoint.co.za 
 
For more information on Sentinel Homes please visit:
Website: www.sentinelhomes.co.za
Facebook: Sentinel Homes
 

A path to financial security is home ownership.  Since there is no rule saying your first property must be a home to live in, you have the freedom to buy the home you can afford as the best way of getting started.
 
Asset prices have escalated much faster than wage increases over the past 70 years and that trend is likely to continue. This simply means that homes are becoming less affordable, says Renier Kriek, MD of Sentinel Homes, a non-bank home loan provider.
 
“If the trend of decoupling asset and wage prices is going to continue the best bet is to get into the property market sooner rather than later. Particularly when there are so many bargains to be had.”
First time home buyers are progressively becoming older because of affordability. It has moved from around 30 to 32 years to around 38 to 40 years.
 
“You must get in earlier to buck this trend. If you wait until the time you can afford your dream home you may never be able to achieve that goal.”
 
It is now a buyer’s market. Kriek explains that South Africa is coming off from a high-inflation-high-interest-rate cycle. “Inflation has become a more manageable beast, and market watchers are starting to predict a decline in interest rates next year.”
 
Time the market
Unfortunately, very few people act until they see the first rate cut. By then the cat is out of the bag and the market will change quite rapidly. “If you want to time the market you have to buy now.”
 
Kriek says first time buyers who can afford to acquire a real estate asset at current interest rates will likely be able to afford it through the cycle; and they are unlikely to purchase a property they can’t afford. “The ugly duckling may be a better start than the shiny house on the hill.”
 
He also suggests that prospective buyers use a bond originator to get prequalification for a home loan. “It shows that you are a serious purchaser, which makes everyone so much more willing and able to help.”
 
Real estate, whether it is your own home or an investment property, comes with expenses and tax consequences. However, if you do not want to live from wage-to-wage for the rest of your life then some sacrifices are called for to enter the property market.
 
“Every goal has some sacrifices and the sacrifices for financial goals are of the living standard kind. If you want to truly benefit from asset ownership you will have to suffer some short term discomfort. That is reality.”
 
Take the leap
Owning inflation-beating assets, like residential real estate in the correct areas and markets, is generally a good idea. Kriek has 19 years of property investment experience.
 
His advice: 

• Save for a deposit; it gives you leverage to negotiate a lower interest rate.
• Research; look at tenant vacancy rates and payment behaviours in different areas.
• Be astute, notice and make use of financial opportunities.
• Don’t get too bogged down in the preparations;  at some point you must take the leap and buy.
• Don’t underestimate the power of leverage. That is using other people’s money to ramp up your investment returns. Residential property is the safest way to use leverage to create wealth.
• The magic of compounding means the sooner you start the better.

​ENDS
 
MEDIA CONTACT: Rosa-Mari Le Roux, [email protected], 060 995 6277, www.atthatpoint.co.za 
 
For more information on Sentinel Homes please visit:
Website: www.sentinelhomes.co.za
Facebook: Sentinel Homes