A home is usually the biggest asset a consumer will ever acquire in his or her lifetime, but the stringent implementation of the National Credit Act by financial institutions is making it more difficult for potential home owners to enter the market.
First time buyers and the self-employed are particularly affected (click here and here for two articles on how the self-employed can obtain the finance they want). Nearly 50 percent of employed bond applicants are declined every month, while about 58 percent of self-employed applicants cannot secure home loans (click here to read an article by ooba on how banks are shunning the self-employed).
Rent2Buy, a new concept for the South African property market, gives potential buyers and property owners an alternative way to buy and sell properties.
"We negotiate agreements between potential buyers and sellers whereby the buyer concludes a rental agreement with a seller with an option to purchase the property by a certain date and at an agreed price," explains Meyer de Waal, the founder of Rent2Buy, and a practicing attorney and conveyancing lawyer.
The seller is assured of a selling price for his property in the future, while the buyer pays rent approximately equal to the buyer’s future bond repayment. The buyer is able to take immediate ownership of the property and takes over the responsibility of the property - including all rates, taxes, levies and maintenance - which would apply if he was the homeowner.
"The idea is that the buyer uses the option period of the contract to prove his affordability and creditworthiness to the bank," says De Waal. "This way the buyer can eventually secure a loan to purchase the property. In addition to using the time to save for a deposit, he also shows he can afford the property and be disciplined by paying rent regularly and on time."
De Waal adds that the three main reasons why bonds are not being granted are:
The absence of a deposit. Although some banks advertise that 100 percent bonds are being granted again, the success rate of these applications is low (click here to read "100% home loan a myth").
Affordability is the second reason. A bank would rather decline a loan than take the risk that the client will not be able to service the loan. This causes a major problem for self-employed applicants in particular.
The third reason for declining credit has to do with the applicant’s credit history. Many applicants are not aware of the banks' sophisticated credit search engines. A judgment against their name or a late payment of an account stops their application. Banks can easily trace this information.
With this in mind, Rent2Buy launched a home owner education programme designed to train and mentor bond applicants to increase their success rate of securing a home loan (Read also "Get a mortgage approved", "How to get a home loan" and "Applying successfully".).
The My Budget Fitness programme looks at improving an applicant’s credit rating and affordability, and essentially puts the applicant on the path to become financially fit for a home loan. Rent2Buy developed the programme in association with Solly Molefe of Setsmol Training.