Unless you already have the savings or are planning to release equity from your home in the UK to buy your property in South Africa, there is a good chance that you will need to secure a mortgage to finance your purchase.
If you are serious about purchasing property in South Africa and require finance, you should start arranging your South African mortgage almost before you do anything else to enable you to proceed with confidence in the knowledge that you have secured the finance necessary to buy a new home.
Forward planning at the start will also give you a better idea of how much you can spend on your South African property and can work out the likely future financial implications of your purchase.
There are certain restrictions on non-residents wishing to purchase property in South Africa, according to Careen Mckinon, head of aggregation, at ooba, the South African mortgage firm. As a consequence, leaving the financial side of your South African property purchase until the end will potentially leave you in a weaker position, especially if you have to raise finance in a rush, which may mean that you end up being unable to secure the best possible mortgage at the most attractive borrowing rate.
There are a number of South African mortgage lenders willing to lend to overseas nationals, but this will depend on the individual’s financial position. South African mortgages will require full disclosure of income, outgoings and savings.
South African lenders assess eligibility on the applicant’s capacity to repay the mortgage, as well as recent credit history. As a guideline, your debt to income ratio should not exceed 35% of your gross monthly income; however there may be a degree of flexibility in this for certain types of applicant. Mortgage, rent, personal loans and maintenance commitments are all considered as outgoings.
For a South African mortgage, you will generally need a minimum deposit of 50% of the property’s purchase price, reflecting the fact that the maximum loan-to-value available is currently 50% of the purchase price, or valuation, whichever is the lower.
“Banks will lend up to 50% of the purchase price, subject to their normal terms and conditions, which would include a valuation of the property,” says Mckinon. “These non-resident loans are however subject to foreign exchange approval from the South African Reserve Bank.”
A variety of products are available. Both interest-only and repayment mortgages can be arranged, on a variable or fixed-rate basis, or a combination of both.
Although lenders offer the choice of either a fixed or a variable interest rate, most mortgage borrowers in South Africa opt for a home loan on a variable-rate basis, with a maximum term of 30 years available, although the time period is more commonly 20 years.
Fixed-rate deals are generally unpopular, with just around 5% of South African mortgages secured on a fixed rate, due to the uncompetitive rates offered by banks on fixed mortgages to offset the risk of volatile interest rates in South Africa.
A variable rate generally means that your mortgage payments can go up or down according to movements in interest rates usually as a set percentage, as opposed to a fixed-rate mortgage which guarantees your mortgage payment each month over a set period.
“Variable rates are applicable although the client has the option to apply for a fixed rate on registration of the bond [mortgage],” adds Mckinon.
Whichever mortgage type you opt for, a loan in South Africa will normally have to be repaid by the age of 70. Thankfully, many mortgage products do not carry early redemption penalties.
It is not compulsory to have life insurance in South Africa, but is a compulsory part of the mortgage process to take out building insurance.
You will need to open a South African bank account before completion, from which your mortgage repayments will be debited. This can also be used for utility bills, taxes, and so forth.
Your property in South Africa will be at risk if you do not keep up repayments on a mortgage secured on it. Be sure you understand the repayments and can afford them before entering into any credit agreement.