Bond Applications From High Net Worth Individuals Can Also Be Turned Down – It Is Not Only Low Earners Who Are Rejected For Bond Applications

At this time of the year there is always an influx of upcountry people into the Western Cape – and a small number of these (perhaps 2%) find themselves wanting to buy property here each year and start making enquiries to that end.

According to Mike van Alphen, National Manager of the bond originators, Rawson Finance, says that this is part of a national trend which FNB’s Property Leader Sales Strategist, Clinton Martle, recently identified in a talk to Rawson Finance staff. Martle said that the younger generation at the coast tends to move to Gauteng, possibly to improve their income, whilst the older generation tends to come south.

Many potential property buyers, but especially those older people who have not recently been involved in property dealing, said van Alphen, are dismayed to find that after identifying a property or an area that they like, they do not qualify for a bond these days – even though in South African terms they are high earners with salaries of anything from R25,000 to R100,000 per month.

“The sad truth which they then have to face,” said van Alphen, “is that under the banks’ new credit criteria, their earnings/expenditure ratio makes them a bad risk in today’s stringent, over-exposed economic conditions – and the fact that they may have large assets does not help them as the banks will focus on their income stream in relation to the regular/typical monthly payments and these will form the basis for their decision.”

Nor will it help, added van Alphen, to argue, as many do, that their extra income from non-core sources, although possibly intermittent, is rock solidly reliable. As the banks see it, no investment is completely safe and they will want assurance that there is a comfortable buffer between monthly income and expenditure and that the income is assured. In particular, they are likely to take a negative view of too many high flyer payments, for example: for luxury cars, expensive holidays, entertaining and too big a range of investments.

In a recent case, said van Alphen, a Gauteng resident with a big income and four properties, three in holiday areas, had to sell one of the these before the bank would agree to his bond. He was also told to limit his fixed monthly personal expenditure to a specified amount.

FNB’s property barometer statistics indicate that the largest portion (75%) of buyers are currently couples. Single males compose around 14% and single females around 11%, said van Alphen. This last figure, although low, is a very big step up on the figures of ten years ago.

The Barometer also indicates that the Western Cape estate agents appear to be the most active in the country, said van Alphen, nevertheless it still takes, on average, some 20 weeks for a Cape home to find a buyer. This period, he added, shows no signs of shortening as yet. Homes are now selling, on average, within 10% of the asking price countrywide, a significant improvement on the situation last year.

Van Alphen said that he had been heartened to find that FNB now increasingly welcomes the participation of bond originators such as Rawson Finance and that these organizations continue to provide them with the largest portion of their bondable business.

“One reason for this,” said van Alphen, “is that the involvement of a bond originator significantly reduces the very high time and expensive costs involved in a bond application process. Bond originators seldom allow an ill-qualified application to go forward and, if they do decide to back an applicant, they make sure that his documentation and credentials are in order.”

The use of bond originators –those with qualified, sympathetic staff – said van Alphen, is on the increase.

“At Rawson Finance our turnover in October hit an all-time high, 20% up on that of the month before and then we had a similar 20% rise in November.”

Rawson Finance, he said, is now budgeting for a 50% increase by the end of 2013.

“People sometimes do not realize that the services of a bond originator cost them nothing. If the bond application is unsuccessful the bond originator gets nothing. If the bond is granted, the originator’s fee is paid by the bank.”

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