Those who are considering investing in the buy to let market may just find that the banks are really not that keen to get on the bandwagon and may even be reluctant to grant a bond based on the rental income the new property is going to generate. There are a number of perfectly logical reasons for this.
South Africa's laws tend to favour the tenant and it is becoming harder and harder to evict those who do not pay rent. This can have a devastating effect on those who rely on the rental income to pay the bond.
It is also becoming far harder - and is taking much longer - to evict tenants. Again, this could prove to be disastrous for those who rely on this income to service their personal debts. Skipping one bond payment may not appear to be the end of the world, but when the tenant refuses to move out and doesn't pay rent until he is legally evicted after a few months, this is going to cause major problems for the bondholder at some time or another. Unscrupulous tenants are also prone to running up exorbitant light and water accounts which the landlord is not only responsible for, but has to settle before the services can be reconnected for the new tenant.
It stands to reason that with human nature being what it is, a person who gets into financial trouble is going to ensure that the mortgage debt on his primary residence is paid first. Although it has never been documented, it would be interesting to see what percentage of homes which have been repossessed fell into the second or third home segment. In a perfect world, buy to let investors would be cash buyers and perfectly placed to weather any financial storms which may come their way. Sadly, however, the majority of buy to let investors that invest in today's property market invariably need some financial support and it is becoming increasing apparent that the banks are becoming more and more unwilling to finance something, which is considered, in their view, to be risky.
The tragic part of all of this is that the best time to invest in a buy to let property is during a downturn. Property prices are generally lower and there is plenty of stock available to choose from. Cash-strapped buyers who are unable to raise the money needed for higher deposits or who cannot secure a bond because of a bad credit history are forced to rent. This drives the prices in the rental market up, making buy to let property a highly lucrative investment.
It appears that although banks are not taking the rental income that could be earned into consideration, they are more willing to grant bonds to those who they consider to be good credit risks. Those who are able to put down a substantial deposit and who have an unblemished credit record may well find it easier to enter the buy to let market.