Self-employed? Get a bond

A growing number of people who are self employed, with incomes dependant on fluctuating commissions, face huge difficulties in becoming homeowners, says Lanice Steward, MD of the Cape Peninsula estate agency Anne Porter Knight Frank.

This, she says, is because the banks, complying with the National Credit Act, have to be especially careful about lending money to people who are employed in positions which might be considered insecure.

"There is," said Steward, "a certain arbitrariness about the concept that a self-employed person, especially one on short term contracts, is not a good security risk because many of these people are high income earners — but that is the way the banks feel obliged to act."

If a self employed person does decide to apply for a bond he should, says Steward, "get all his ducks in a row".

This involves, firstly, producing all his annual financial statements for the last three years — and if he has not been in business for three years the chances of his getting a bond are likely to be greatly reduced.

Then, too, he will have to produce:

  • his management (income and expenditure) accounts for the last three months;
  • a cash flow summary for the last six months (if he is applying to ABSA for his loan);
  • a copy of the lease on his business premises (if they are leased);
  • six month's bank statements;
  • tax assessments for the last three years;
  • a signed statement from an accountant confirming his income;
  • a summary of his personal family expenditure in relation to his income; and
  • his ID book.

Ironically, says Steward, right now in South Africa more people are opting to be freelance entrepreneurs than ever before — some because they were made redundant by the recession or affirmative action policies, others because they see this as the way to achieve a better lifestyle — but it can take years before they own a home.

"No one wants to see South Africa becoming a nation of tenants rather than homeowners," says Steward.

Banks are easing up

In the circumstances, she adds, those considering buying a home should first talk to a reputable bond origination company, such as ooba, who can advise them at what level to pitch their bond application and how to eliminate potential obstacles (such as unpaid debts) which could mitigate against their getting a bond.

"The good news," says Steward, "is that month by month we are seeing the banks ease up on their loan criteria. So, with luck, by 2011 the position of the self employed wanting to become homeowners will no longer be so difficult and the current difficulties should not deter people from trying to buy while house prices are still at their low levels."

Article from: www.iafrica.com