Bank bashing, says Tony Clarke, MD of Rawson Properties, has become a favourite pastime among estate agents, all too frustrated by their inability to get mortgage loans for their clients. There is, he says, a strong feeling in the residential property sector that the time has come for banks to take on and compete with each other in the open market in awarding bond finance.
Although this is changing, banks have traditionally been content to service their existing clients with bonds '“ but not to fight for mortgages to the clients of rival banks, said Clarke.
This and related unenterprising conservative attitudes, said Clarke, are resulting in the banks taking too long to get rid of their repossessed properties and this, in turn, is holding down the recovery of house prices.
'If they would compete with each other more openly and vigorously for issuing mortgage loans and if they would take a slightly less fearful stand on the National Credit Act (which is not that difficult to comply with), we (and, I suspect, other agencies) will have buyers lined up to buy properties in possession. The problem, however, is that they have become so cautious that even good credit risk clients often fail to get a bond'
Clarke said that Rawson Finance, his groups bond origination division, had recently had a case where a buy-to-rent investor had been refused a bond on a PIP (property in possession) because on one of the other properties in his portfolio, he was one month behind payments.
'This,' he said, 'was almost certainly due to an administrative error, not to any lack of assets or funds but with the current scorecard/computerised, no-discussion criteria the applicant was ruled out'
An innovative bank lender, he said, would have made the new bond conditional on this account being paid up to date and could have increased their returns instead of sitting in a stalemate situation.
'Let us hypothesise, that a bank has 100 properties in possession (most have far more). If, still complying fully with the National Credit Act, they take slightly more risk and sell all 100 to buyers of whom, say, 10% fall behind on or renege on their bond payments, surely their overall situation is still improved: they will have 90 homes on which they are getting a return as opposed to 100 on which there was no return at all. Banks should by now be trading out of their bad debts and on the ten in trouble they still have the house as surety'
Unsold properties in possession, said Clarke, lower the tone (and the prices) of all other homes in the same precinct '“ and, he added, this is particularly true of sectional title schemes where not only have PIPs brought down values but ironically they have made banks very reluctant to fund new buys in the same complex or body corporate.
'Taking excessive risks, such as they did in the boom years, is not what we are advocating '“ but some risk is needed to increase sales and get shot of the repossessed properties still clogging the market'
For further information contact Tony Clarke on 021 658 7100 or email tony@rawsonproperties.com.
