I’ve avoided applying for a bond for two years because of all the horror stories people tell me of trying to get one since the banks decided property buyers and investors were too risky. Instead I’ve been making cash offers on properties.
But four months ago there was an irresistible buy in Berea, Johannesburg, and I made an offer at R260 000. I decided to test the bond market and make it subject to a R200 000 bond. That’s a 70% loan to value. The current gearing – mortgage debt to asset value -- on my mainly property assets is about 16% of loan to value. I have some cash in the bank and unencumbered listed shares. The offer was accepted and I applied for the bond through an originator.
Nedbank were the first to turn me down. Thanks to the National Credit Act I could get them to tell me why. It was mystifying and embarrassing. “Poor payment profile,” they said. I couldn’t understand it because we had one instalment on the Sandton bond in March that went through.
The embarrassing part was that it was a Nedbank credit card I have that my new PA had difficulty getting on to her system and paying on time. That gave me this “profile”. Fair enough, the bank has justifiably found me wanting. That “impairment” will clean out in about six months, said the originator.
The second bank to decline was FNB. Their reason was because “the application falls outside our lending criteria, as the property is situated in a D rated area.” What’s a D rated area? “A D area is an unacceptable area to the bank, in terms of lending,” explains FNB. Red lining is back.
“Don’t even bother with Standard Bank,” said the originator.
So we were left with Absa Bank, which happens to be my bank and has intimate access to all my financial affairs. But they wanted more – much more detail.
And there was this matter of a bond payment that was returned from the bank account of a property partnership in which I have a share. It turns out that the bank paid itself a batch of bond instalments on Sunday, the 1st and the account was a couple of thousand short to pay the last bond. Rental payments could only be made on Monday, as they were.
I haven’t had an answer from Absa and perhaps it’s best not to know now. My experience so far gives me the clear message that the banks are looking for any reason not to lend. But do they want their money back that they’ve already lent?
I have a letter from a Mr Young. His motor business was badly hit by the current downturn and he had to sell his house in a hurry. The bank charged him a R41000 penalty for not giving three months notice on his R1,6m mortgage. “But if I’d paid off my bond and then cancelled it, they would have had to do just as much work,” he points out. “It looks like a rip off.” He’s right. And chances are that the interest rate he was paying was up to 2% less than the next man pays on that money. In fact, the money is unlikely to go into mortgages but to other, higher-profit lending.
I suppose agents are used to this story and used to the decimation of their industry. I’m beginning to understand just how bad it must be with continual disappointments from mortgage declines after working for weeks, even months, putting a deal together.
In the last issue of Property Professional, I accused the banks of culpability in throwing money at the property market, making it gigantic, and then abandoning it when it didn’t suit them. Then amplifying the contraction of the property industry by pressuring defaulting borrowers to sell their properties for as little as 50% of their current value. It’s worse.
The banks say they are worried about the risk of people losing their jobs and defaulting. Defaults are rising fast, they say but won’t share data with us. Surely Mr Young should be rewarded, not penalised, for selling his house quickly when he ran into trouble and giving the banks their money back?
There can be only one answer for this. The banks want to make as much money as they can out of the current situation, partly because they must build up their capital but also because they see the opportunity to do so. Besides being immoral, it entrenches the conviction among bank customers that the overriding motivation of bankers is greed.
Article courtesy of and is taken from their May/June 2009 Issue.