House hunters the world over are finding it more difficult to secure bond finance. South Africa is no different and those who apply for a mortgage bond are going to find that the process is far more complicated than before.
Regardless of the circumstances, buying a property is a stressful experience. Finding the right property at the right price only forms part of the equation these days and many people have discovered that the real emotional part of the deal only occurs once they have signed an offer to purchase a property.
In the mid-2000s arranging bond finance was virtually child’s play and very often, buyers were able to secure finance before they started looking for a property to buy. Times have changed and, not only is pre-approved finance a thing of the past, but the challenges facing those who apply for bonds have grown enormously over the past couple of years.
Bond originators have been proving their worth for a number of years. During the boom, they were able to secure finance at favourable interest rates by approaching all four of the major banks on behalf of the buyer. During this time, bond applications were approved – sometimes within hours – and with a minimum amount of fuss. The origination industry grew at an incredible rate and at one stage it was recorded that some 80 percent of buyers utilised the services of originators. Things have changed somewhat and the number of bonds being granted has dropped significantly. However, in a recent report it was noted that around 60 percent of SA consumers actively still source mortgage finance via an originator.
There is a good reason for this. Originators take a large amount of stress from the bond application process; they understand the banks’ lending criteria perfectly and are ideally placed to ensure that all the documentation required is submitted timeously. By approaching various banks they are also more often than not still able to source the most favourable deal.
While originators may have made the bond application process easier, their clients still have to jump through a number of hoops. Self-employed people in particular have found it increasingly difficult to raise mortgage finance and have to submit copious quantities of documentation, including extensive financial records, to support their application.
Even if you earn a salary, the process is going to take longer than before and this is unlikely to change anytime in the near future. It’s no secret that banks suffered substantial losses in their home loan departments during the economic downturn and it is extremely unlikely that they will ever allow the situation to return to those seemingly crazy days of the credit free for all.
Those who apply for bond finance need to understand that the exercise is neither as simple, nor as stress free, as it once was and regardless of their circumstances, the process is going to take a lot longer than before.
Take some of the stress and strain out of securing bond finance by:
Ensuring that you have an outstanding credit record.
Ensuring that you have copies of all the relevant documentation that is required.
Only submitting offers on properties that you know you can afford.
Having a substantial deposit.
Affordability is the key driver behind bond finance. Banks have to be able to determine that the person who is applying for the bond can actually afford it and has the credit record to prove it. Banks also have to find value in the property itself and this is very often when problems start to appear. Financial institutions have to ensure that the product that they are funding is worth the money so that, in the worst case scenario, they can sell the property and recoup any monies that are outstanding.
Many of South Africa’s properties are still overpriced (at least in the banks’ eyes) and it is highly unlikely that a buyer will find a bank that is willing to take on such a risk. While this may be frustrating to buyers, in actual fact, those investing in a property should heed the banks’ warnings and, instead of attempting to push through a somewhat shaky deal, should perhaps move on to something that the bank not only regards as a safer bet, but which it is far more willing to finance.