Why you should apply for your maximum bond value, even with a deposit
The current, exceptionally low-interest rates in South Africa have sparked off a sudden and unexpected call for residential property bonds. This was especially noticeable in June, after the low sales of April and May when the pent-up demand for housing resulted in a very welcome rise in home sales.
Rowan Alexander, Director of Alexander Swart Property says, while it is unlikely that this mini-boom will be maintained, there is now clear evidence that a higher level of demand for bonds will continue and many will be applying for the first time.
However, Shaun Rademeyer, CEO of MultINET Home Loans says South Africa’s “weak economic growth, coupled with accelerating inflation, will inevitably result in a significant drop in home loan approvals for the foreseeable future”.
“In the current economic climate, SA banks will face higher capital-reserve requirements. They will therefore want to ensure that they take on quality business and will no doubt become more particular when assessing new credit and loan applications,” says Rademeyer.
It is therefore critical that you do not do anything to derail your home loan application during the registration process in these tight trading conditions.
“For instance, if you intend on getting married while the bond is being processed, you could be in for a surprise …. your home loan could be declined, reassessed, or cancelled if your marital status changes. Add to that, your spouse’s credit score will be factored into the application, and your marriage agreement – you may have to add your spouse as a co-applicant”
“This could delay the transfer process, an amended Offer to Purchase would need to be signed to include your spouse as a co-purchaser to the sale agreement,” adds Rademeyer.
Consider the following advice when applying for your home loan:
Do a proper income and expenditure budget
Make sure you are fully aware of the state of your personal finances. Getting pre-approved will always help establish what type of deposit you will need to put down. Once you know what you can afford, try to establish whether houses in that price range meet your desires and requirements.
If the property you are considering is out of your price range, carefully re-evaluate your monthly expenses to assess where you may be able to save extra to afford a bigger home loan. If not, play it safe in a realistic price bracket, suggests Rademeyer.
Always apply for the Maximum value
Contrary to the advice frequently given, buyers should apply for the maximum bond they qualify for, not the smaller bond values favoured by the banks says Swart. If the applicant has any form of deposit, it should be paid into the bond shortly after registration rather than offered as a deposit upfront. This will ensure withdrawal again, should it be needed in the future. If the deposit is paid towards the purchase price and a lower bond amount applied for, this is not possible.
Apply to ALL the major banks (or at least three or four)
Bond applicants often approach only the bank with which they have an account, possibly believing that their loyalty to this institution will ensure favourable terms and a better than average deal but this is very seldom the case. Furthermore, the applicant who receives offers of credit from more than one bank puts himself in a strong position to negotiate with one or more such institutions to improve his position.
As a corollary to this, the buyer should work through a registered bond originator. It is advantageous for the originator to understand the client’s full position and to build up a reputation by securing good terms for him or her. As the originator has probably dealt with several banks for years, he will know how to “tick all the boxes” in the application and will tailor the application to each bank to make the most of their conditions. It should be remembered, too, that this service, which can make a huge difference to the client’s financial position, costs the buyer nothing. Some agencies have full-time bond originators on their staff, however, an independent bond originator such as Silent Partners serves to remove any vested interests that may exist with an in-house originator.
Opt for a longer loan period, possibly 25 or 30 years
You don’t have to opt for the more customary 20-year bond. With a maximum value bond, the bondholder can often pay any extra cash monthly (or whenever it suits him) i.e. pay above the stipulated rate and thus build up an immediately accessible cash reserve for the future. ‘Extra’ money paid in reduces the monthly interest on the outstanding debt. Bondholders who have followed this advice have quite often found themselves not only able to ride out difficult times (Such as the Covid-19 pandemic and lockdown) but also able to pay off their properties far earlier than anticipated.