The banks, says Rob Lawrence, National Manager for Rawson Finance, have received much favourable publicity on account of their willingness once again to give 100% bonds '“ to select clients.
Just how 'select' they have to be became clear recently when Lawrence revealed his companys hit rate in this category: on average only 3 to 5% of applications for 100% bonds have proved successful.
In the past, said Lawrence, over 40% of applications for 100% bonds were successful.
'The public have to understand that a 100% bond involves a very high risk for the bank. With absolutely no deposit at stake, it is possible to see the monthly repayments as 'rent' and the bondholder can walk away from his commitments all too easily '“ and there have been many cases where this happened. With property no longer growing in value at the 20 to 30% per annum rate we saw in 2004 to 2007, the chances of the banks recovering a reasonable sum when bondholders default are greatly reduced '“ especially as the whole repossession process is costly and time consuming.
If at all possible, says Lawrence, the bond applicant should tailor his finances so as to be able to apply for a maximum 90% or smaller bond. In the 90% category, where clients can prove income and have clear credit records, Rawson Finances recent hit rate has been a high as 80% - but, says Lawrence, it is very important that clients disclose their full financial position to their bond originators '“ this will ensure that their application stands a good chance of succeeding.
Of concern says Lawrence, is that the hype that has been created by the banks promoting 100% bonds has now created an expectation that every buyer who applies for a 100% bond will get one, whereas 95% will not.
'This has led to a lot of very disappointed prospective property owners, angry sellers and frustrated real estate personnel,' said Lawrence.
'Because of this, at Rawsons,' he added, 'we sit with every buyer and where we feel he or she might not qualify for a 100% bond, we try and see whether a deposit can be raised. A 10 to 20% deposit will give them a far better chance of buying their dream home'
