The four "Cs" s to getting property finance

The key is to think like a bank manager.

JOHANNESBURG - The property market is slowly recovering and investors are scouting for deals. However, while the banks have started lending more than last year, it is still difficult to obtain finance in this market. Just three years ago credit was easy to come by. Everyone from retailers to micro-lenders were dishing out credit. When the world hit recession, the money dried up. The only applicants to be awarded finance were those who could show that they didn`t really need it. Furthermore, the finance that they did receive was expensive. While a discounted lending rate of prime less 2% was not something to get too excited about in 2006, just a year or two later, investors were lucky to receive any discount at all.

It is important to remember that bank managers are not investors. They seldom understand the principles of property investment- that is let the tenant pay the bond repayments while the investor enjoys the compounded income and capital growth.

Therefore, the key to getting finance at a competitive rate, is to think like the bank manager. The investor who has built up equity in other properties may perceive oneself as less risky than an owner occupier by having the ability to sell a property if running into financial trouble. The bank manager however prefers financing a "less exposed" owner occupier who will cut back on other expenses if necessary to remain in his or her home.

According to renowned international investor Dolf de Roos, getting finance is all about psychology. Don`t ask the bank for finance, rather offer them the opportunity to finance your property. The key is confidence and understanding that the bank also stands to benefit from the transaction.

The banks typically look at four main factors when assessing a finance application.


The applicant's ability to repay the loan is determined by their monthly income. As a rule, up to 25-30% of an applicant`s gross monthly income may be used in servicing all of their mortgage repayments. Usually only about 50% of rental income being derived will be added to the applicant`s salary. The bank will also assess the net income of applicants to ascertain whether there is enough income to service the bond after deducting all the applicant`s expenses. Self employed people are generally perceived as higher risk.


The bank will do a full credit and employment check in determining whether the applicant can support the loan. Any negative listings will affect the applicant`s chances of getting credit even if the outstanding debt is very small. Too many previous applications for credit may also count against the applicant. The bank will also verify employment and may refuse credit to workers on contract.


Many of the banks will offer an "approval in principle" to applicants meeting the above mentioned "capacity" and "character" requirements for the loan. The final approval will depend on the valuation performed on the property (click here for our valuation tool). While most banks are claiming to offer 100% loans, the more common maximum is a 95% loan to value offering. For investors, many of the banks are only lending up to 75% of the value of the property.


The final factor affecting applicants is one in which they have very little control- the conditions in the market. The retail banking industry in South Africa is dominated by only four major players. While the big four were intent on increasing market share during the boom times, they are now intent on limiting bad debts. Remember, they are not investors and do not see the potential which the property market offers. All they see is unemployment and a softer economy. Give them a few years and 110% loans should be available yet again (Absa is already offering them again see Absa's plan to seize more lower-income earners)

In the meantime, here are some creative ways to obtain financing:

  • Create a proposal for the bank with a computer analysis of the investment including returns and costs as well as cash flows and successful statistics in an existing portfolio (Remember to think like the bank manager!)
  • Don`t be limited to the four big-banks. There are other smaller investor-friendly players who are often more flexible. Instead of simply entering thousands of applications into the system for a computer generated approval or decline, here the individuals are making the decisions. Other investment properties which are cash flow positive may not be viewed as exposure at all when assessing affordability.
  • Raise 75% finance from the bank and the rest through private investors, family or friends.
  • Raise 75% finance from the bank and the other 25% from the seller, repaying him or her in monthly instalments at the same rate charged by banks.
  • If one is a builder or can renovate cheaply, one could purchase the property and include a delayed mortgage clause where transfer takes place within six months to a year from the date of the agreement. Then arrange with the seller to immediately begin updating the property which will increase the property`s value. The 75% which may be raised on the property may cover the purchase price. (One needs to be confident here about gaining finance as to avoid renovating someone else`s property.)

Article by: Lance Levitas -