Mortgage loans in Zimbabwe explained - Seeff
Category Property Markets
Buying or selling real estate is likely one of the biggest sales or purchases the average person will ever make in their lifetime and it is not always an easy one at that.
"When making this decision it is very important to be well informed on the nitty-gritty involved and we would like to expand on different types of mortgage loans in this country, says Patience Munetsi-Patongamoyo, Seeff's MD in Zimbabwe.
1. Conventional/Low ratio mortgages
This is a mortgage where the down payment is equal to 20% or more of the property`s purchase price. A low-ratio mortgage does not normally require mortgage protection.
2. High ratio mortgages
This is when the borrower is contributing less than 20% of the purchase price of the property as down payment. These mortgages must have mortgage default insurance.
3. Open mortgages
This mortgage allows the flexibility to repay the mortgage at any time without penalty. They usually have shorter terms, but can include some variable rate or longer terms as well.
4. Closed mortgages
A closed agreement that cannot be prepaid, renegotiated or refinanced before maturity, except according to its terms.
5. Fixed rate mortgages
The interest rate for this mortgage is determined and locked in for the term of the mortgage. This is the main type of mortgage in the Zimbabwean market.
"In our present day market, mortgages have fast become popular and it is important for a buyer or seller to understand the meaning and types of mortgages that exist in the market so that they are well informed and intellectually equipped when engaging in the latter.
Equity release mortgage loans, inter alia, have also hit the market of late. Most banks and financial institutions are offering special mortgages referred to as either equity release mortgage loans, home-equity loans or simply second mortgages.
This is a type of consumer loan that allows home owners to borrow against their residence for home improvement, extensions, remodeling, or to have access to cash and so forth. Due to the current economic challenges being face by the nation, the Equity release mortgage loan is the only one being offered."
Munetsi-Patongamoyo says that in the Zimbabwean property market today, home mortgage loans are being rejected due to their lengthy processing time which takes too long to complete for the sellers to retain monetary value on full payment of the purchase price.
"This scenario has left most banks and financial institutions with an excess of funds reserved for home mortgage loans.
Due to fierce competition in the market and the rejection of most home mortgage loan offers they have become innovative and are putting more emphasis on offering this type of special loan because they can easily approach that segment of the market.
These loans are offered firstly to current home mortgage loan clients who have paid more than half the years on their current mortgages and have improved their monthly income since the last processing time.
They calculate the difference between open market value and total compound balance on current mortgage loan. The bank or financial institution will then give out half the value of the difference as home-equity loan".
Is Zimbabwe experiencing a buyer's or a seller's market?
Munetsi-Patongamoyo says due to the current uncertainty within Zimbabwe's economy and many policies that have changed, there is currently a higher demand for property when compared to the properties available on the market.
"Buyers are trying to offload their funds held by investing in immovable property. This high demand and shortage of reasonably priced properties has seen different agents partnering together to achieve sales that was not common in the past.
Because of this the Real Estate governing body continues to urge registered agencies to partner with other registered players to avoid promoting bogus agents as this shortage also creates room for them to flourish and take advantage of the situation.
The number of buyers being greater than the stock available means that people have funds available in banks and mortgage offers which then forces them to settle for what is available or nothing at all.
Demand is high and supply is limited which therefore concludes that Zimbabwe is relatively a sellers' market. The simple fact that demand exists means that there is plenty of hope and promise for Real Estate in Zimbabwe".
Munetsi-Patongamoyo concludes that as a nation they remain optimistic as these current difficulties may very well be the birthing pains of excellent economic reforms that will see all sectors of the market eventually prosper. Nothing comes easy in terms of development.
"The three tier pricing system being fuelled by the illegal black market trading of money, inter alia, is leaving sellers and buyers in a dilemma in terms of property pricing for sellers and the non-acceptance of mortgage bonds by most sellers for buyers.
The daily changes in the rates also make the situation untenable and therefore leaves buyers stranded with the majority of sellers pulling their properties off the market while they await certainty.
In conclusion however, with our footprint in and around the whole of Southern Africa and our association with Hamptons International we have taken prerogative of partnering with a local bank to offer the much needed mortgage finance to the diasporian market for continued property investments".
This six bedroom home in Borrowdale is listed for US$ 1,500,000.
Author: Seeff Zimbabwe