Bond pitfall for home owners
Property owners attempting to cancel their bonds when they sell are finding that some banks have been making things very difficult. Lanice Steward, MD of real estate company Anne Porter Knight Frank Properties, says the first of banks new rules makes it necessary to give three months notice of a cancellation.
This gives rise to numerous problems, the most obvious of which is that in todays market it may well be impossible to sell your home within three months.
Since June 2006, the Reserve Bank has increased the benchmark interest rate by five percentage points, putting consumers under pressure to meet their monthly debt obligations such as mortgage payments. But since the end of last year, interest rates have been decreased by 150 basis points and it is anticipated that further rate cuts will continue throughout the year.
The latest FNB Property Barometer shows that the average time it took to sell a house was five months as prospective buyers had difficulty securing a bond because of banks new stringent lending criteria.
Steward says when the three months lapse, and the owner still has not found a buyer for the property, some banks are understanding and roll over the bond and delay cancellation.
Others, however, now require the holder of the bond to submit a further cancellation notice for another three months, says Steward.
Luthando Vutula, managing executive at Absa Home Loans, says its policy is that owners should give three months notice of cancellation of the bond. Should they be unable to sell the house in that period, they are given a further three months grace in which to sell.
Steward says that one bank has gone as far as to intimate to a seller that when the three-month notice period ends, it will go ahead and cancel the bond whether or not the house has been sold.
Steward says this could cause a problem because, on reapplying for a bond, some owners could find that under the new National Credit Act they no longer qualify for a loan at the previous level.
If an owner does not give three months notice and cannot delay the sale for that length of time, many banks, says Steward, now charge excessively high cancellation fees, although some are prepared to waive these if the applicant takes out their next bond with them.
Many of us in the real estate sector, says Steward, can see no justification for a cancellation fee because the costs of speeding up a cancellation are minimal. It is particularly unjust if the owner has been a regular payer. The whole set-up appears to be simply a way to earn extra revenue for the bank.
Steward says that home owners selling their property should go to their banks and find out directly what policy is being applied.
She says the answer should be in writing and from an authorised person.
There have been cases where a subordinate did not give the same ruling as his superiors and in one instance the court then ruled in favour of the bank, despite the applicant having been misinformed.
Article by: Loyiso Sibali - www.businessday.co.za