Rawson Financial Services has recently been achieving a success rate of over 80% on its applications to banks for home loan mortgage bonds - far higher than the average for the industry - and this, says the Rawson Group MD, Tony Clarke, is due largely to the way in which they package and present the applications they help clients prepare.
'At Rawson Financial Services,' he said, 'we have trained our consultants without in any way fudging the truth to present the clients financial situation in a manner that is more likely to find favour with the banks since they started to operate on the National Credit Act rulings. The clients risk profile has to be reduced to make him or her more acceptable for a loan and, although apparently simple, this does require a certain skill'
Many clients, added Clarke, are ill-informed as to what a bond actually is and how it works and they are scared off by the apparently draconian regulations of the National Credit Act '“ but they have been relieved to find that bonds can still be obtained if the consultant knows how to present the clients application professionally.
The bond application process kicks off with the client submitting a bond application, but these days this is often not acceptable to the banks and sale agreement is cancelled '“ a frustrating situation for both buyer and seller.
Where bonds are approved, said Clarke, in many cases the sum required is not granted. It is very unusual today, for example, to get a 100% bond, 90% being the maximum generally allowed.
What routes are then open to the thwarted purchaser longing to own his own home but in need of extra finance?
The first thing the buyer may able to do, said Clarke, is to prove that he has income over and above the sum registered on his monthly pay slip. Guaranteed annual bonuses, for example, do count as income and it is sometimes possible to arrange with the employer to pay these on a monthly rather than on an annual basis, thereby raising the applicants basic salary cheque.
Alternatively, it can be possible to arrange with the employer to pay part or all of the applicants provident fund contributions into his salary or to make a cash advance using the funds built up in his pension fund. This, said Clarke, makes good sense because a home is a very sound investment and can eventually contribute towards the applicants pension.
Then, too, said Clarke, there are instances in which the buyer can raise a further bond on property which he already owns and on which he has significant paid up equity.
Alternatively third parties can also sometimes be persuaded to make an unsecured collateral investment, thereby again earning interest at attractive rates.
The collateral route, said Clarke, is often followed by families with, for example, the father assigning certain funds to the bond issuers dealing with his son or his daughter. When this is done the sum assigned, although not used, is put into a fixed deposit and is immediately frozen by the bank.
Insurance policies, too, can be pledged as security for a long term loan, provided they have been running long enough to have a worthwhile paid up value. Again, as a home is a sound investment, many people see this as a kind of insurance.
Buyers can, in some cases, persuade banks to register a second bond covering the shortfall on the first bond in favour of the seller. This can be very helpful where the seller is in a hurry to leave but the first bond issuer has to agree to this.
Here the purchaser arranges with two or more people to form a syndicate to advance the extra capital needed (e.g. 10% or 20% of the purchase sum). The purchaser is given the first right to buy back the shares from the syndicate.
This system, said Clarke, in most instances works because anticipated increases in the value of the property will make it possible down the line to register a higher bond value and for this the bond applicants increased earnings by then will probably qualify him.
In certain companies, where the bond applicant is a tried and trusted employee, it is often possible to arrange a loan for him on the so-called 'golden handcuff' system, i.e. he agrees to continue to serve the company for a stipulated period while his loan is paid off.
The seller may also himself agree to advance a loan to help with the buyers deposit and in most cases this is done without security. Although risky, this procedure has brought about many a sale where the property was in danger of sticking on the market, said Clarke.
In some cases, added Clarke, buyers and sellers can hammer out an instalment sale agreement which does away with the need for a bond and allows the seller to benefit from interest rate payments that would otherwise go to the bank.
'This is a great way to keep wealth in the family or company,' said Clarke, 'but it does have a drawback: if the buyer defaults on his payments, all his instalments to date are legally forfeited'
Some of these alternative options, said Clarke, can be particularly attractive to sellers who are in a hurry to dispose of their properties, for example if they are leaving a city or leaving the country.
'Wise sellers realise that it is better to get a deal tied up quickly rather than to try and manage the sales process over a long period from another part of the country or from overseas. They also realise that if they delay selling now in the hope of getting a higher price, the exact opposite will probably happen - after months of waiting they will often find that the house sells at below its true market value.
'Many sellers dislike the stress and the invasion of privacy that the whole selling process can entail and are very aware that finalising the sale quickly frees them to make the most of other opportunities. In addition where sellers do help buyers, in our experience this usually enables them to get a slightly better price than they would otherwise have done'
