Information on how to apply for bond finance to help purchase a home has been disseminated by SAs banks and bond originators in a steady stream for some years now '“ and yet, says Rob Lawrence, national general manager of Rawson Finance, the bond originators, he and his team find themselves daily dealing with false assumptions which often reveal a deep-rooted ignorance as to the rules of property purchasing and how to finance these transactions.
Lawrence is now in the process of distributing a short memorandum on this subject to Rawson Properties 146 franchisees countrywide. This, he says, should help scotch some wrong ideas which can be so painful to have to shoot down later and which can waste so much estate agency and bond originators time.
Entitled 'Six common misconceptions about home purchase finance', Lawrences memo lists the following as the beliefs that most commonly lead to problems:
· Minor or not too serious credit defaults in ones past will either go undetected by the banks or will be overlooked.
'There is a perception that, for example, a missed instalment or two on household appliances or a car is no great issue. However, every credit payment failure is a black mark on the applicants record and the chances are high that it will have been recorded. To get a big percentage bond, you have to have a completely clean record,' says Lawrence. A bank might still make an offer to such a client, but it certainly will not be above 90%.
· Those able to get a loan at 2% below prime previously, will be able to do so again.
'This misconception,' said Lawrence, 'crops up regularly with those who bought in the boom times prior to 2007 and probably did get a very favourable rate then'
Today, he says, the banks are pricing for risk (as they perceive it in the clients position) and for increased profits. In practice this means that, even with 'good' clients, bonds are typically awarded at the standard rate or often above it, i.e. 9,5 or 10% Those who now get even 1% below prime, said Lawrence, are the fortunate low-risk few.
· The applicants own banks will give them the best deal.
'Regrettably,' said Lawrence, 'every bank has different lending policies and different views of risk. Every loan is treated on its own merits and, as the banks lending criteria are all different, the borrower will quite possibly get a better deal from a bank he has never dealt with before'
· A bank valuation on the property means that the bank has given it a 'clean bill of health' and it is in an acceptable condition.
This, says Lawrence, is not the case. The bank valuers task is simply to assess the market value of the home at the time it is bought.
· Home buying and getting bond finance are not for the poor.
'This,' said Lawrence, 'is definitely not the case. SAs banks have committed themselves to the affordable (R350 000 to R500 000) market and, if anything, are inclined to be a little more lenient in their rulings here than on the more expensive properties. The goal is to make South Africa a property owning nation '“ and the latest figures from FNB do show a big rise in first time home buyers, who now comprise 23% of the total'
· The bond applicant working overseas and earning a big salary will be considered a good loan risk. Again, says Lawrence, this is not true: the banks have seen too many cases in which, on returning to SA, the high wage earner has had to settle for a substantially lower salary which in turn, has made it difficult for him to service a big bond perhaps granted on the higher income he was earning overseas. The banks therefore tend to limit overseas applicants bonds to between 50 and 70% of the purchase price.
Is there a general rule of bond financing illustrated by these common errors?
According to Lawrence the rule is that those who persevere win in the end.
'It may take time, but if the applicant works at qualifying for a bond, he will often do so in the end, even if he has to lower his sights in the process'
For further information contact Rob Lawrence on 021 658 7100 or email rob@rawsonfinance.co.za.
