Real Estate Investor Magazine South Africa April/ May 2020 | Page 26

LEGAL
Legalities to
eternal luxury
Legal requirements to obtain a bond
MEYER DE WAAL
A
mong the many other ways to getting your first property
one can apply for a home loan. With this comes the
requisites by the bank or financial institution that
administers the application. The three main requirements that
a financial institution will consider are:
the affordability of the client to pay the monthly
instalments,
the history of the client to pay back current and past
credit instalments and
the value offered, the latter often referred to as the LTV
or loan to value.
Credit Score
The credit score and propensity of the applicant will be the first
defining factor to enable the financial institution to determine
the risk of the loan and the possibility of the client to repay the
monthly instalments.
A practical example: As first-time buyer who earns R15 000
per month may qualify for a home loan of +/- R480 000 and a
FLISP subsidy of R62 300.00.
If a financial institution is found guilty of reckless lending
practices, such institution can be slapped with a severe penalty
and also have to repay all monies received in lieu of repayment
of such loan.
A financial institution will consider the risk to advance credit
to an applicant and the past credit behaviour will determine
the interest rate of the home loan. The better the credit score,
usually the lower interest rate. However, if a home loan of R480 000 is approved, the
subsidy can be added to the home loan and then the purchase
power of the buyer increased to R542 300.00. (R 480 000 + R62
300 = R 542 300.00)
As a guideline, a financial institution will consider 30% of the
gross income of an applicant to apply for the repayment of a
home loan. For instance, 30% of R30 000 per month income
is R10 000, the R10 000 can be applied to repay a home loan.
A repayment of R10 000 will be able to service a home loan
of +- R10 000 per month, depending on the repayment period
of a home loan and the interest rate that the client qualifies for.
Repayment example
9.75 % - calculated at the current prime interest rate of
9.75%, a home loan payable over 20 years will cost the
home buyer R 9 485.17 per month
10.75% calculated at 1% over the same period at
the current prime interest rate of 9.75%, a home loan
payable over 20 years will cost the home buyer R10
152,29 per month
This 1% extra will cost the home owner an extra R160 109.05
in home loan repayments payable over 20 years.
APRIL/MAY 2020 SA Real Estate Investor Magazine
A FLISP deposit is available for all first-time buyers who have a
dependent, [spouse or child] and whose total gross household
income is between R3 501 up to R22 000. The subsidies range
between R12 162.00 (the highest to R27 960.00) on a sliding
scale, based on one’s income.
Apply for a lower loan
The subsidy can be subtracted from the home loan applied
for and the buyer may thus have a better chance to qualify
for a R417 700 home loan compared to a R480 000 home loan
application. (R480 000- R62 300 = R417 700).
Affordability
Affordability, as guided by the National Credit Act is based
on the ability of the client to pay back the credit instalment
every month. If a consumer is over indebted, then the financial
institution may decline or lower the amount approved.
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Get a deposit from the government
First time home buyers can also get a deposit to assist them
to qualify easier for a home loan and apply for a smaller home
loan if the available FLISP Government subsidy allowance for
first time home buyers is used.
Statistics reveal that almost 50% of all home loan
applications are declined due to a low, thin/bad or poor credit
score. Many consumers also pay up to 75 % of their income
towards debt repayment and as such fail the “affordability” test
for a home loan.
Research has shown that a 2 % increase in a home loan can
cost a home owner up to 32 % in mortgage repayments over a
20-year repayment term.
Property ownership forms part of the most important assets that one
should strive to hold to their name But for those looking to buy their
first property the question is ‘Are you going about it the right way?’
registration costs as part of the property finance application.
Security offered
An existing property owner can apply using his/her existing
property as collateral. An aspiring home buyer can provide the
new property to be purchased as collateral, or even an existing
property as collateral.
Some financial institutions are currently willing to offer a home
loan at 104 – 108 % of the purchase price of the property. This means
that the Purchaser may be able to include transfer or mortgage
Who can apply for a home loan?
An applicant must be at least over 18 years old and must
have sufficient income to service the monthly repayments,
to comply with the requirements of affordability” under the
National Credit Act.
If a home buyer is married in community of property, in
terms of Section 15 (2) of the Matrimonial Property Act 88 of
1984, both spouses must consent to the registration of the
mortgage bond. If a company is to register a mortgage bond,
such action must be sectioned by the directors of the company.
The records of the Companies and Intellectual Property
Commission [CIPC] must be scrutinized if the company is still
“in business” as other the CIPC may have commenced with a
process to deregister a company due to the failure to provide
and update the records of the company with the CIPCC.
If a Trust is to register a mortgage bond, such action must be
approved by the trustees of the Trust. A trust agreement may
stipulate that a minimum number of trustees must be in office
and if such required number of trustees are not appointed
or the required quorum obtained, then such mortgage
application cannot legally be submitted.
Insolvency Act
Section 34 of the Insolvency Act 24 of 1936 prescribes that
certain types of property sales must be advertised to creditors
and such advertisement must be placed in the Government
Gazette and newspapers in the area the seller traded in.
If the advertisements were not placed, a financial institution
that extended a property finance facility may face the harsh
reality that their mortgage loan and security held can be
regarded as worthless if the seller is declared insolvent,
sequestrated or liquidated within a certain period of time after
the property transfer.
It is best advised to obtain property legal advice when transaction
in any property transaction or property finance application.
SOURCES MDW Inc, FLISP, Avid Firefly
SA Real Estate Investor Magazine APRIL/MAY 2020
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