There must be something seriously flawed with the banks’ home loans risk algorithm. I recently encountered a situation where a self employed business person tried to apply for a bond on a new property. They have an excellent credit record and have run a successful (and very profitable) business for almost 20 years…but because they are self-employed they have found it very difficult to get bond finance for the house from all of the banks (a bond originator was used).
The irony (and fault in the system) is that their PA, who is employed by them, can get a bond more easily because she is a “salaried employee”. How flawed is this?
So what is it with the home loans divisions of the banks – how can you justify this crazy system? Or is it just a tick-box exercise that no one has applied their minds to for far too long?
Flipping banks! Was chatting with a client yesterday who was relating his sorry tale of applying for a bond…here are the facts; you decide if this is ok!
Net income – R45000, bond applied for R1075000 on 10th Jan 2011 (house value – R1.56million, deposit – R485000). The banks replied as follows:
- ABSA – “our bond people are off until Feb so we can only let you know then”.
- Nedbank – “your primary bank account is not with us so we wont consider the bond” (this is so doff because a current account would only bring them about R900 in fees for a whole year).
- FNB – did not bother to reply to the request (business must be really great).
- Standard Bank – “yes, we will give you a bond but the rate will be prime +2.5%” (they are smoking their socks).
So the client went to SA Home Loans…bond approved and granted (effectively at prime less 1%)! Well done to SA Home Loans.
SA banks really need a big wake up call…sure we dont want to see them lending recklessly but we also dont want them to be complete idiots about not lending either.
I spent some time with clients recently working out what sort of bond they should be able to afford…they had seen a house they liked and wanted to put in an offer (subject to bond approval). Here are the facts:
- Cost price: R850000
- Deposit: R450000
- Bond required: R400000 (maybe a bit more if allowed for some improvements)
- Combined income: R16500 pm (after tax)
Based on the above they should easily have qualified for a bond of R400000 (even at prime, the repayments on a R400k bond would be about R3730 pm and the required income for this should be about R12500 pm).
Armed with this info they set off to their bank as well as to a mortgage originator, fully expecting a positive outcome. “No Ways” they all said in unison..” it’s too risky! We dont like the fact that the wife if self-employed”…and they want signed financials and projected cash flows.
For goodness sake, she is a sole proprietor and does not need signed (audited) financials. Surely her tax returns for the past few years should suffice?
Maybe the banks got burnt from too much reckless lending in the past, but just how much risk is there really in granting a R400000 bond on a property that is currently worth about R850000? Banks should be ashamed of the way that they are treating people. How can we ever expect the economy to grow when this is their attitude?
My advice to them is to approach SA Home Loans (according to their website at least, they should qualify for a R400000 bond with ease, and at a better rate). Perhaps someone at SA Home Loans is interested in new clients and building new relationships because it looks like our banks are not.