Shop Around Before You Buy
Bond origination is a bit like window shopping: there are options. You could venture into one store and buy a wonderful gadget, just to find the exact product at another store at a more affordable price. When it concerns applying for a bond, and you only opt to approach your bank, you are really exposed to only one of many possibilities, especially in the light of recent stringent lending criteria. Using the services of a bond originator ensures you get the best deal at all times.
Stringent Lending Criteria
“The problem,” says Tony Clarke, MD of Rawson Properties, “is not that we object to the more stringent lending criteria. The difficulty is that all too often wholly worthwhile applicants are rejected simply because their profile does not quite match the current arbitrary scorecard criteria – and in most cases there is no-one to whom the applicant can appeal for a review of his situation.”
In one case, says Clarke, a 48-year-old applicant who had sold his house applied for a bond to buy a home in a better area. He had paid his bond on his previous home for 16 years and had never once defaulted. Furthermore, the loan he asked for was no higher than what was still owed on his first bond. To his dismay, his application was rejected, even though he had been with the bank for 20 years and had conducted all of his business through them.
“His ‘fault’,” says Clarke “was that he was self-employed. Even though he could show that he had always been successful and had regularly paid his monthly bond payments on time, his employment was, under the new rules, deemed as risky.”
Bonds Being Declined
According to recent statistics, 57.9% of self-employed applicants had their bond applications declined in the 2009/’10 financial year. This represents an increase of 2.4% compared to 2008/’09. The 45% rejection rate on bond applications, although an improvement on the situation earlier in 2010, says Clarke, is a serious handicap to the country’s economy. In his view, property should be spearheading South Africa’s climb out of recessionary conditions, but until there is at least a 50% increase in bond approvals, this will not be possible.
Bond Origination Model
“The beauty of the bond origination business model is that your consultant will approach all four major banks to find the best deal at the most competitive rate for you,” says Rob Lawrence of Rawson Finance. “If a client is declined a bond after we have approached all four major banks, we will then approach non-banking institutions to help secure a bond. Because of our strong relationship with the banks, we are able to campaign on our client’s behalf.”
The Rawson Finance Business model is designed so that the real estate deal is secured for the client and the agent and all at no cost to anyone. Lawrence says that working from a base where there are strong ties between the real estate property companies, the banks and the bond originator influences the success rate.
Story by Lindsay Wagner (First Published in REIM: http://www.realestateinvestormag.co.za/)
