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Home loans and bond originators

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03 Jan 2013

Home loan applications from High Net Worth Individuals can also be turned down – it is not only low income earners whose applications are rejected.

Many potential property buyers, but especially those older people who have not recently been involved in property dealing 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, says Van Alphen.

This is according to Mike van Alphen, national manager of Rawson Finance who says 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 percent) find themselves wanting to buy property in the area.

He notes 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, while 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 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, says Van Alphen.

“The sad truth which they then have to face 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 to argue, as many do, that their extra income from non-core sources, although possibly intermittent, is rock solidly reliable, he points out.  

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.

Van Alphen says in a recent case, a Gauteng resident with a big income and four properties, three in holiday areas, had to sell one of these before the bank would give him a home loan.

Van Alphen says in a recent case, a Gauteng resident with a big income and four properties, three in holiday areas, had to sell one of these before the bank would give him a home loan.

He was also told to limit his fixed monthly personal expenditure to a specified amount.

FNB’s property barometer statistics indicate that a large portion (75 percent) of buyers are couples.

Single males compose around 14 percent and single females around 11 percent, and this last figure, although low, is a very big step up on the figures of ten years ago.

The report also indicates that the Western Cape estate agents appear to be the most active in the country, nevertheless it still takes, on average, some 20 weeks for a Cape home to find a buyer, he says.

This period shows no signs of shortening as yet. Homes are now selling, on average, within 10 percent of the asking price countrywide, a significant improvement on the situation last year.

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

“One reason for this 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, he points out.

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

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

Rawson Finance is now budgeting for a 50 percent increase by the end of 2013.

“People sometimes do not realise that the services of a bond originator cost them nothing.”

If the bond application is unsuccessful the bond originator gets nothing and if the bond is granted, the originator’s fee is paid by the bank, he adds.

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