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 The global economic crisis has changed the way we do business. Like many businesses the banks have also had to look at their appetite for risk, how to allocate their limited financial resources while retaining their existing client base and keeping their shareholders happy. As Arnold Bennett so rightfully put it: “Any change, even a change for the better, is always accompanied by drawbacks and discomforts.” And have we had our fair share of “discomforts and drawbacks” …The property finance specialists, Property Factor, take a closer look at the areas in which banks are changing their behavior in the current economic environment.
Interest rates
Interest rates at prime less 2% are for now a thing of the past. You are more likely to be offered an interest rate above prime. If your current bond is costing you prime less 2%, we strongly urge you not to touch it, because if you do, the new pricing structure of the banks will apply.
Fixed rates are no longer quoted prior to registration of the bond. You can only apply for a fixed rate once your bond has registered. Don’t be surprised if this is substantially higher than the current prime rate.
100% bonds
Gone are the days where the banks would not only offer you a 100% bond, but they were willing to add in the costs if you were a first time home buyer. Nowadays you better have some funds saved to cover costs and at least a 10% deposit.
While the banks advertise that they offer 100% bonds and even cover costs in the “affordable housing” category, very few clients qualify for this and the privilege comes at a hefty penalty in interest rates.
The self-employed
Self-employed individuals better have their “ducks in a row”, as they will have to provide financial statements for two full yearend periods. The banks have become experts in analysing what your financials say about you and the manner in which you run your financial affairs.
Nedbank will not consider you for home loan finance if your primary business account is not with them.
Bond registering attorneys
Previously the bond applicant could nominate the attorney responsible for registering the bond, provided that the attorney was listed on the banks panel. Now, however, with the exception of First National Bank, all other banks reserve the sole right of nominating the bond registering attorney.
Financing vacant land
Banks will only consider financing up to 60% of the value or purchase price of the land. In other words, when purchasing vacant land be prepared to put down a 40% deposit. Furthermore, the repayment term will be less than that of normal home loans. Nedbank will only consider financing vacant land under exceptional circumstances and once finance has been approved by their regional sales manager.
Purchasing properties in CC, (Pty) Ltd or Trust
All banks have taken a very strict stance when it comes to financing properties in juristic entities. ABSA and Nedbank will not finance properties purchased in an entity. FNB will consider financing properties purchased in an entity, provided it’s strictly a property holding and not a trading entity. Standard Bank will only consider financing property in an entity provided the individual e.g. the trustee, member or director of the entity has an existing relationship with the bank.
Access / Flexi-bond facilities
While most banks’ position on flexi-facilities has not changed in the past year, the biggest shocker was Standard Bank’s (the founders of the access facility) new policy on this hugely beneficial product. Unlike in the past, you are not automatically guaranteed of being granted an access facility when your home loan has been approved. You must apply for it after the bond has registered. One of the pertinent criteria in approving such a facility is that your main transaction account i.e. the account into which your salary is deposited, must be held with Standard Bank.
SA Citizens working abroad
In the past, you were treated in the same manner as locals living in South Africa. However now, with the exception of ABSA, the same criteria that apply to foreigners also apply to you. In other words, you will need a minimum of 50% deposit. Nedbank will not finance you at all if you don’t have an existing non-resident relationship with them. Fortunately, ABSA still considers you a SA citizen.
Non-residents on a work permit
Previously, provided we could supply the banks with a permanent employment contract and a current work permit, the banks would finance such individuals as they do normal South African citizens. Unfortunately, non-residents on a work permit now will require a minimum of 50% deposit.
These are just a few examples of the changes that we’ve had to contend with in the past year. The sad tale of woe is that this is applicable here and now, but tomorrow, best you give Property Factor a call to confirm if this still applies. After all we are living in a dynamic ever-changing world!
www.propertyfactor.co.za
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