One of the common mistakes made by potential home buyers is to pick up the idea that if they have substantial assets, for example two or more properties, these will qualify them for a mortgage bond.
Banks will almost certainly rate the bond applicant not on his assets but on his income.
This is according to Mike van Alphen, National Manager of the Rawson Property Group’s bond origination division, Rawson Finance, who says the banks will almost certainly rate the bond applicant not on his assets but on his income.
Bond-free properties can, however, sometimes be used as additional security or as a means of raising the necessary deposit and the legal fees. The banks will always take a very conservative view in examining the income sources and will prove particularly careful if they deem these to be unreliable, says van Alphen.
“There are, in fact, no laws stipulating how and when a bank can issue a bond. It is always their decision as to whether or not to do so. These days they will be guided by the National Credit Act and it has to be remembered that if they do act irresponsibly and allow a creditor a loan, which clearly involves a significant risk, they can be heavily penalised for contravening the Act.”
Van Alphen says quoting from Consumer Information, the newsletter from the Ombudsman for banking services, it is essential for the applicant to be completely open about his financial situation. Any false information or non-disclosure of facts may exonerate the bank from penalties but may well lead to the applicant being prosecuted.
“If a bank rejects an application or accepts it only on tough conditions, the applicant is free to apply to another bank. This can, however, be a time consuming and disheartening process which is why a large number of bond applicants opt to work through a bond originator, who will do the necessary research for them and will probably get them the best possible deal.”
Van Alphen says there is now a strong suspicion that the interest rates in South Africa will be raised further to control anticipated future inflation. Some analysts are already saying that the increase by the end of the year could be as much as a further 1 percent.
“In view of the possibility of this happening, the banks are now likely to be more cautious about bond awards and will factor possible increases into their decision-making. This, in turn, means that bond applicants must scale down their ambitions if they are to be successful,” says van Alphen.
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