There has recently been a lot of hype created by the banks promoting 100% bonds, and this has led the expectation that every buyer who applies for a 100% bond will be successful. In fact, this couldn’t be further from the truth.
According to the latest statistics released by ooba, South Africa’s leading bond origination company, the proportion of consumers applying for 100% bonds jumped to 44% of overall applications in December 2009 - up from 18% three months earlier. However, Rob Lawrence of Rawson Finance believes that only 3% to 5% of all these applications are successful.
Lawrence, who gleaned these figures from his company’s hit rate in this category, also pointed out that in the past, 40% of applications for 100% bonds were successful. He believes that the main reason banks are no longer willing to take the risk is that property is no longer growing in value at the 20% to 30% per annum rate we saw in 2004 to 2007. Therefore, the chances of the banks recovering a reasonable sum when bondholders default are greatly reduced – especially as the whole repossession process is costly and time-consuming.
So it would seem that, despite all the hype being bandied about, banks remain reluctant to grant the full amounts applied for and this is resulting in many disappointed prospective property owners, angry sellers and frustrated real estate personnel. As is usual with financial institutions, it’s yet again a case of not putting their money where their mouth is.
