FINANCE
The Demise of the
Access Bond
Uninformed Investors in for a nasty surprise
BY GARY PALMER
Many investors and small business owners are being caught unawares when trying to access additional capital through their homeloans . Not only is the age of the access bond over , they may trigger changes that then result in new , unattractive rates from their bank .
Many South African entrepreneurs used to rely on their access bonds to fund new ventures , new investment properties and , sometimes , as short-term operational capital when cash flow was tight .
Post 2008 , central banks reigned in lenders and we saw both the National Credit Act and Basel III put a serious crimp on banks ’ ability to offer these open ended loans . Basel III requires banks to meet two key ratios : the liquidity coverage ratio and the net stable funding ratio .
The liquidity coverage ratio is aimed at ensuring that banks have a stock of high-quality liquid assets that can meet a 30-day cash outflow in the event of a run on a bank – as we saw internationally in 2008 . The net stable funding ratio , meanwhile , is there to ensure banks have enough long-term stable funding to protect against an extended period of stress . This is prudent and ultimately , protects the consumer against reckless lending and a potential banking crisis .
What many entrepreneurs don ’ t know , however , is that this has all but eradicated the traditional access loan . What ’ s more , if any kind of change is made to
existing contracts , banks will apply new credit rates .
Some investors still think they can capitalize on their homeloans for new investment opportunities . However , while their original bonds may have been at prime minus two percent around three years ago , the current lending rate sits closer to prime . This is clearly very expensive money . It places an excessive risk burden on investors and should be avoided if possible .
More than this , investors should be aware that they may not even be looking for additional credit and any changes to their loan facility with the banks will still trigger new rates . Examples of this could be a change in suretyship , withdrawal of a share portfolio as security , or even an addition to the deal that would logically seem appealing , such as the addition of security to the facility .
Rather than trying to re-engineer their loan facilities , investors should start the process of looking for capital by approaching an alternate lender . Having an independent organisation , which is not tied to the same regulations as banks , and that has access to hundreds of traditional and non-traditional lenders , can assist in finding the best deal available , without compromising what might be you biggest asset – your home .
RESOURCES
Paragon Lending Solutions
24 MARCH 2017 SA Real Estate Investor www . reimag . co . za