Real Estate Investor Magazine South Africa December / Jan 2016 | Page 25

of the ratio of debt to equity in 2008 in what became
known as the subprime mortgage crisis in America, at
the tail-end of the last property boom, when lenders were
competing with each other so strenuously to do business
that they got closer and closer to a 1:1 ratio between debt
and equity until they were lending more than the value of
the security. The fact that, to add insult to injury, the value
of the property then tumbled, created a real disaster: as the
chasm between these values really opened up not only the
debtors and their properties were swallowed, but even the
lenders fell into the void.
As a conveyancer who registers a high volume of
mortgage bond cancellations on a regular basis, I also
tend to see some patterns in the way banks relate to
their borrowers: very often borrowers take a first bond to
acquire a property, a further bond to renovate or extend it,
and further bonds to consolidate debt, secure overdrafts,
pay taxes and cover unexpected exigencies. In most cases
the borrower thinks that he has “extended” his bond in fact, he has extended his loan, but from a legal point
of view the bank has instructed that another bond be
registered - so someone who thinks that he has had his
bond “extended” five times, actually has an original and
five further bonds over his property. Hence the costs of
each “extension” have been quite high.
But what one notices about these subsequent bonds
is that often they get smaller and smaller as the value of
the bond starts to approach the value of the property possibly even the frequency of the bonds is increasing,
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and now you know that your borrower is getting into
deeper financial water and it’s getting to be time to ease
up on the credit, if possible. There is another variable that
the lender will consider with older buyers, namely life
expectancy: a buyer over 60 years of age will find it harder
to get a 20-year loan. Whereas lenders do not always
insist that younger borrowers must cede a life insurance
policy as additional security, that requirement becomes
more essential where the loan applicant is older – and if
such an applicant does not already have a life insurance
policy to cede, he may find it harder – possibly even quite
impossible – to procure such a policy, due to his or her
medical history.
A word about “paid-up”