Existing bonds can be converted to access bonds

With buy-to-rent investors once again moving back into the residential property sector, it is becoming clear that as a result of the National Credit Act certain applicants no longer qualify for the sort of bonds that they were able to get previously.

“Those not au fait with current conditions are sometimes inclined to think that their assets, which may be substantial, will influence the banks in their favour. Unfortunately the only thing that the banks consider is the applicant’s current cash flow,” says Lanice Steward, Managing Director of Anne Porter Knight Frank.

One way round this, says Steward, may be to revive a bond that is still in existence but partially or largely paid off. Unfortunately this facility is not available at ABSA, who will ask the bond holder to reapply. Under these circumstances the NCA lending criteria will be enforced.

Many bondholders, she says, took out bonds five, ten, 15 or more years ago without asking for an access facility on them. This, however, does not debar them from getting an access facility now - and in most cases the bank will allow the bondholder to borrow up to the amount he has already paid back.

“We often find that clients have two or three bonds still in existence with substantial sums paid up. These can be revived to make a new purchase or an upgrade possible. However, the applicant should always be aware of the amount of time by which the additional money borrowed is extending the bond if he uses this facility: a fairly small sum can add many years to the pay off period. In addition, there are no guarantees that this will be granted.”

Using an existing bond for finance, says Steward, is not only simpler - it also saves the significant cost paid out on new bond registration fees.

Article By: www.anneporter.co.za