When sellers accept offers on their properties, all parties are usually elated. But, warns leading KwaZulu-Natal south coast real estate principal Charles Alterskye, owner of Acutts Amazimtoti Coastal, an accepted offer does not always equate to a confirmed sale. That's because so much can go wrong prior to the sales agreement even reaching the conveyancers, let alone the deeds office.
Topping the list of reasons for sales crashing is bond applications being denied because of credit judgments or "adverses" on record against buyers, says Alterskye. This is a trend on the rise in his area of operation and one that now accounts for around 25 percent of accepted written offers not getting beyond the bond application stage. And that's even with attempts by enterprising mortgage originators to get finance through the four major South African banks as well as Ithala Bank and even approved off-shore institutions such as Standard Charter.
Property deals involving the established market and those of the middle to upper income-earning population are less inclined to falter because of poor credit records, however, says Dirk Van Zuilekom, principal of Homenet Kloof in KZN's Upper Highway area. Rather, the problem lies predominantly with lower income earners, purchasers who have moved up from entry level home ownership and inexperienced emergent market buyers. "In these sectors, up to 50 percent of sales crash because of purchasers with poor credit records," he notes.
Both Alterskye and Van Zuilekom feel that the problem is having such a serious impact on the real estate industry in KwaZulu-Natal that the time has come for the banks to revise their lending and pre-approval processes. "Before the advent of intense computerization, properties being purchased used to be almost sufficient collateral for buyers to obtain finance, but this is no longer the case," says Alterskye. "Nowadays, computers have given banks the ability to assess someone's credit worthiness without even physically inspecting the property that is being sold whereas 80 percent of the weight of the loan should be based on the value of the product."
He would also like to see both government and the financial institutions look at a fixed period pre-approval that cannot be withdrawn for a specified period such as being valid for 60 days. "As things stand at present, you can have a situation where a pre-approval is given one day, a bad judgment the next and then the pre-approval withdrawn the day after that. This would immediately lead to an approved bond being withdrawn. However, the bond can't be withdrawn if a bad judgment is given against the purchaser the day after the bond is registered."
With the wide range of home loan packages available on the market today, Alterskye also believes the time has come for a risk-loaded product that stands alone for people with previous poor financial records – just as there is for first-time buyers. In his experience, people learn from their mistakes. "Those who couldn't get a bond because of a poor credit rating and have now cleared their name, do successfully re-apply for bonds and rarely, if ever, have their homes repossessed."
In the interests of reducing the risk to the banks, these mortgages could be underwritten by insurance brokers, he adds. "These buyers are unlikely to mind paying the insurance premium on top of the bond repayment, especially since the policy premium will reduce as the property appreciates and provided the person maintains regular payments and a good credit record with the mortgagor." – Ingrid Smit
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