Buyers should prepare for tougher rates
Even “low-risk” bondholders who before the economic downturn were given bonds at anything up to 2% below prime have not realised that this is highly unlikely in today’s credit market.
So said Rob Lawrence, national manager of Rawson Finance, who added that although it is common knowledge that the profitability of South African banks has taken a hammering since the late 2008-2009 global financial slump, this reality has not struck home with many home buyers.
“Consumers forget that prime is just a yardstick that banks use to judge risk and that the banks’ risk in this market has increased commensurably. The price of money, which is a bank’s trading commodity, has had to be increased,” he says.
“There has been ongoing press publicity about the stricter lending criteria, but buyers who now apply for bonds and who are still earning well are understandably very frustrated when they find that their risk rating has been downgraded and they can get either no discount or a very low discount, such as 0,5% on prime.
“The plain truth, however, is that today any discount on prime represents a fairly generous concession on the part of the banks.”
The position of the average bond applicant, said Lawrence, is that 45% will still find their applications rejected and those that are approved can count themselves fortunate if their bonds are awarded at 0,5% or 0,75% below prime. High-risk applicants – those with a poor debt or employment record – may well find themselves paying 1% to 2% above prime.
Certain jobs, some of which were previously regarded as “safe” and certain industries, said Lawrence, have now been rated on risk by the banks.
“For example, any person in construction, the motor trade, in airlines or luxury extra services such as interior decorating, will now find it harder to get a bond, as will any person who is self-employed. In fact, self-employed people have never found it more difficult to get a bond – even if they have been earning well for a long period.”
So – what can the aspirant bondholder do to increase his chances of securing a bond at the best available rate concession?
“Either take the time to shop for your financing at each individual bank or use a bond originator. Reputable bond originators know the varying criteria and the varying interest rates to which banks work and they will often be able not only to secure a bond but to do so at a more favourable rate, because they have tried all avenues.”
Lawrence warned that although it is commendable to build up a close relationship with the bank which handles your day to day affairs, this should not lead people to expect that they will give you the best bond rates.
“Often the banks will rely on the bond applicant’s loyalty to get him to accept a rate that is not really competitive,” said Lawrence.
“It will always be to the consumer’s advantage to find out what the market can offer him, as opposed to looking at one offer. If, after shopping around, the buyer finds that his bank is giving him the best deal, he will then have the peace of mind of knowing this.”
Jan Kleynhans, CEO FNB Homeloans, says over 3,500 distressed local home owners have been assisted successfully through First National Bank’s Quick Sell Plan (QSP) since its inception in February last year.
“The customers that we have helped through this programme can now move forward with their lives, clear off a debt burden that they can no longer service and reduce excess debts,” adds Kleynhans.
QSP is a private sale option that enables customers who are unable to service their debt obligations, to sell their property voluntarily in the shortest possible time through FNB’s nominated estate agents across the country.
The agent’s commission will be covered by FNB Home Loans and forms part of the discount offering the bank offers to customers. “In other words, the seller still pays the commission from the proceeds of the sale. However, the Quick Sell discount which is applied in the event of a shortfall will offset the commission paid. The bank has negotiated a discounted commission rate with the nominated agencies.
“FNB offers buyers up to 100% bonds on all Quick Sell properties. Should both the transfer and registration be handled by an FNB appointed attorney, buyers can also receive a 50% discount on both transfer costs and registration fees,” says Ryno Mey, FNB homeloans national Quick Sell Manager.
Where there is a shortfall after the sale of property, the bank will give a seller a minimum discount of R30k (limited to the shortfall amount) or 15% of outstanding loan balance. Any shortfall is repayable over a period of up to 10 years at the prime lending rate. “However, if the shortfall is paid within five years, the loan will be interest free,” Mey explains.
– Eugene Brink