Roughly 20% of all bond applicants in South Africa require 100% bonds today – but the rejection rate on this type of application is always a great deal higher than the average, says Mike van Alphen, National Manager of the Rawson Property Group’s bond origination division, Rawson Finance.
Some 85% of those applying for 100% bonds, he adds, tend to buy in the R500,000 to R750,000 price bracket. Those hoping to buy above R750,000 are often upgrading and can put down 10 or 15% deposits as a result of the sale of their current home.
“The banks are sometimes accused of being too harsh in their assessments of 100% bond applicants. However, in my experience this is not so – they are committed to helping in this sector but they have to work to the rules and standards set by the National Credit Act and there is no getting away from this.”
Despite on-going publicity in the media on this subject, says van Alphen, the vast majority of bond applicants do not check their credit records before applying for a bond, nor do they make any attempt to save for a deposit.
“In these circumstances a good originator can help: one free credit check is allowed for every South African resident per annum and if further checks are needed the originator can arrange these. Furthermore, an experienced originator can advise the applicant on how to manage his or her expenses so as to build up a nest egg for a deposit. This may be a long term process and saving may take a year or two, but many good bond originators have set applicants on the right path in this respect.”
Another common mistake, says van Alphen, is for applicants to apply for a bond that their incomes do not justify. Here, too, he says, a bond originator can often help the applicant adjust his sights in the way prescribed by the banks.
Regular calls from the public for ‘safety net guarantees’ to the banks to increase bond application ‘hit rates’, says van Alphen, are misguided. It is, he believes, the public themselves who must learn to be more responsible.
“We all recognize that an increase in 100% bond approvals is exactly what is needed to stimulate the housing sector and allay social discontent. However, this must not be done by ignoring the provisions of the National Credit Act, which, applied at exactly the right time, has succeeded in limiting reckless spending and has, to a large extent, protected potential home buyers from accumulating a large monthly debt commitment that they simply cannot afford,” says van Alphen.