Four tips on bond applications from the director of a leading estate agency

Posted On Thursday, 30 July 2020 02:40 Published by
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The current, exceptionally low interest rates in South Africa have sparked off a sudden and unexpected call for residential property bonds.

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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. Some banks reportedly saw as much as a 50% increase in bond applications in June. 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.

Alexander’s advice for bond applicants which, if taken, would make a big difference all round:

  • The first tip is to apply to ALLthe major banks; or at least three or four. Banks have differing “score cards” for credit applications, some placing importance on one factor, others on a different aspect. This means that there can well be wide variations in the sums they make available and the conditions they set. 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 recieves 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 applicant should work through a registered bond originator. It is advantageous for him to understand the client’s full position and to build up a reputation by securing good terms for him.  As he 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 him nothing. Some agencies have full time bond originators on their staff.
  • Thirdly, always apply for the MAXIMUM value. Contrary to advice frequently given, he advises buyers to apply for the maximum bond they qualify for, not the smaller bond values favoured by the banks (who likes to see some commitment from the applicant). If the applicant has any form of deposit, it should be paid into the bond shortly after registration rather than offered as a deposit up front. This will ensure withdrawal again, should it be needed in future. If the deposit is paid towards the purchase price and a lower bond amount applied for, this is not possible.
  • A longer loan period, possibly 25 or 30 years should be requested, not the more customary 20 year bond. With a maximum value bond, the bond holder 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. Many people are getting through the current Covid-19  crisis by using funds accumulated in this way, said Alexander and, of course, the “extra” money paid in reduces the monthly interest on the outstanding debt. Bond holders who have followed this advice have quite often found themselves not only able to ride out difficult times but also able to pay off their properties far earlier than anticipated.

“Many people have not yet realised that the radically lower interest rates and the banks’ increased willingness to do deals have made the current period ideal for property investment.  Some are making the most of these highly favourable conditions but there is scope for many others also to get onto the band wagon. Let us hope they do so,” he said.

 

Last modified on Friday, 31 July 2020 02:50

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