South African Mortgage Basics

Interest Rates

The interest rates in South Africa are set around the prime interest rate (currently 10.5%) and a discount of up to 2% can be negotiated with the banks (8.5%).

How much can I borrow?

There is no minimum or maximum amount for mortgages in South Africa mortgages can be arranged for between 5 and 25 years (although 20 years is the average).

What proof of income is required?

There are no non-status / self certified mortgage facilities available in South Africa, however renting your property out is permitted and the banks will normally take into account 50% of this income in your application.

You will need to provide the following documentation:

·          Copy of your passport / Identity document

·          Proof of income (latest salary slip if self employed / P60, Company Financials and a letter from a Chartered Accountant stating your income if elf employed)

·          3 months personal bank statements (into which your salary is paid)

·          Offer to purchase 

What is the amount that I will be eligible for?

This is done on a case by case basis dependent on your financial situation, however the maximum you can borrow is 30% of your gross monthly income is the maximum you are allowed in terms of your monthly mortgage repayments.

Taxes & Other Costs

There are three main costs for which the purchaser is responsible:

• Transfer Costs
  Transfer costs include transfer duty and conveyancers' (legal) fees. Transfer duty is calculated as a percentage of the purchase price and varies depending on the purchaser's legal status. For a company or trust the rate is 10% of the purchase price and for an individual the calculation is as follows: For a purchase price of R0 - R190 000.00, the duty is 0% For a purchase of R190 001.00 - R320 000.00,the duty is 5% on the value above R140 000.00
  
  For a purchase price of R320 001.00 and above, the duty is R9 000.00 + 8% on the value above R320 000.00 Converyancers fees are charged by the attorneys for attending to the transfer and registration of the bonds, and are calculated according to a legal tariff.
• Bond registration costs
  These are the fees charged by the attorneys used to register the bond. The fees are worked out on a sliding scale according to the legal tariff, but these generally work out as 1% of the size of the bond.

• Tax and the repatriation of funds
  All funds introduced from outside South Africa to acquire fixed property within South Africa may be repatriated, together with any profit on resale of the property, after deduction of any capital Gains Tax payable, provided the title deed of the property has been endorsed 'non-resident'. Funds introduced into South Africa in the form of foreign loans to fund acquisitions of corporate entities which own property in South Africa, may be repatriated in terms of the original loan approval by the Reserve Bank. The profit on resale may also be repatriated, provided the relevant securities have been endorsed 'non-resident'.
• Income Tax
  South Africa follows a revenue based income tax system similar to the UK's, thus income earned from a South African source will be subject to ordinary income tax. In particular to property purchasers, any rental earned by foreign nationals in respect of South African properties will be subject to income tax and it is the responsibility of the foreign national to register as a South African tax payer.
  
  Income earned by natural persons below R27 000 per annum (for persons under the age of 65) and R42 640 (for persons above the age of 65) is exempt from income tax, whilst all income earned over and above the aforesaid amounts, will be taxed at a marginal rate applicable to that non-resident.
  
  Corporate entities are subject to a tax rate of 30% of each Rand of taxable income whilst the equivalent rate for a trust is 40%. Non-resident companies are taxed at a rate of 35% but are exempt from Secondary tax on companies (STC) in respect of dividends paid.

Capital Gains Tax
Unlike South African residents who do not pay CGT on the first R1m of profit on the disposal of their primary residence, foreign nationals do not qualify for this exemption. Therefore CGT is payable in the year in which the asset is disposed of and is calculated by adding 25% of the capital gain, or profit, to the individuals income for that year and taxing that income at the individual's marginal rate of income tax. The maximum marginal income tax rate for individuals in South Africa is presently 40%. The capital gain is calculated and disclosed in the individual's income tax return for the year in which it is sold. This works out at a tax rate of approximately 10%.

Foreign nationals are only liable to pay CGT on the disposal of the following: Immovable property situated in South Africa, including any right or interest in immovable property.


Bank valuation & Arrangement Fee
Inspection fees are approximately 0.2% of the valuation. The arrangement fee varies between 0% - 1.5% of the loan amount dependent on which bank you choose to put your loan through.

Estate Agents' Commission
This fee is normally paid by the seller and is usually 7.5% + VAT (currently 14%).