In a talk to prospective home buyers, drawing on 45 years of experience, Mike van Alphen, National Manager of Rawson Finance, the Rawson Property Group’s bond origination division, recently summed up some of the lessons he has learned.
“My advice to any would-be buyer is to, first and foremost, get in touch with a reputable bond originator such as Rawson Finance. The applicants should then make use of this person’s knowledge to help him calculate the size of the bond for which he will in fact qualify, in the process taking into account his current and further potential earnings.”
“At Rawson Finance we find that people are often slightly over-optimistic in these matters. They also often underestimate the upfront costs that they will be called upon to pay. On a R750,000 bond, for example, the transfer bond costs would be R33,000 and there is no way in which payment of this amount can be delayed, although in some cases it can be added to the bond.”
“Some clients seem to think that getting a 100% bond is these days easy, but regrettably this is not the case. Such bonds are awarded to only ± 15% of applicants and these are mainly people buying under R600,000 (where, incidentally, they are further helped by the fact that transfer tax is not applicable).”
“However as 100% bonds tend to be awarded with high interest costs, my advice to prospective buyers is always to try and put down some sort of deposit so as to keep the monthly repayments as low as possible.”
“This leads to my second piece of advice, which is to start saving each month the amount that will be paid on your bond repayments so that when these become due you will know that you can handle them and by then you will also have worked out what ‘extra’ outlays you will probably have had to cut out for the time being. The advice given by building societies in the old days was always “practice paying what you will be paying” and that is an admonition worth listening to. If you can save even more than what your bond payments will be, so much the better.”
“At this time too, possibly with the help of his bond originator, the applicant should obtain the free credit report to which every South African citizen is entitled to once a year. This can be done by logging onto www.mytransunion.co.za. If there are ‘black marks’ on your credit bureaux reports, e.g. unpaid store or credit card accounts, it is essential to put this right as soon as possible because you will not be granted a bond unless your credit record is completely clean.”
“It is also absolutely imperative at this time to resist the temptation to take on more debt, e.g. in the purchase of a new car, unless your bond originator can assure you that this will not adversely affect your chances of being granted a bond. Any debts which might indicate that the bond applicant will have difficulty in meeting his monthly repayment commitments will inevitably cause the bank to decline their bond approval.”
“The most successful bond applicants in our experience have been those able to put down a deposit of at least 10% and/or those who have been saving for three, four or five years or even more. Those who have never disciplined themselves to save will always struggle to get bonds and will usually end up paying a high interest rate for them at anything from 2 to 6% above prime.”
“Nevertheless, almost every applicant’s chances will be greatly improved if he or she works with an experienced bond originator who is in contact with and understands the criteria on which the major banks and financial institutions award bonds. Countrywide as many as 48% of bond applicants fail, at least initially, to get a bond, but most bond originators are operating on a significantly higher success rate.”
“The final point that I would make is that South Africa’s history shows that, with the exception of a few severe down periods, housing has always kept ahead of the inflation rate, sometimes by as much as 10 or 20%, and in the long run is without any doubt at all the best way in which the man-in-the-street can improve his asset position and eventually leave a small nest egg for his heirs.”
