In South Africa, people who want to purchase a property, either for business use but more likely as their home generally do so by taking out a bond, or mortgage is it also known. It is rare that a private individual will have sufficient cash assets at their disposal to buy a property. This means that they will require calling upon the services of a bank or a building society to lend them the balance to enable them to buy their property.

Banks are in business to lend money, and lending against bonds has always represented one of the principal pillars on which a bank’s business is supported. Holding bonds, or mortgages, or home loans as they are also known, represent long term profits for the bank, and are, in most cases, free from all risk. The reason why they are free from risk is that when a bank lends money against a property, the hold the deeds for the property until the loan is repaid.

When a member of the public is interested in buying a property, before approaching a bank for a bond, they should be able to meet certain criteria that the bank will insist on. First and foremost, they should be capable of putting down a cash deposit against the purchase of the property. So long ago, banks would never consider issuing a bond for a property purchase unless the buyer had a minimum of 30% of the total purchase price for a deposit.

The current subprime mortgage crisis which has engulfed the Western World really came about because banks, especially those in the United States, relaxed these restrictions, and members of the public were being allowed to take out bonds of 100% on property purchases. Nowadays, due to the catastrophic damages that this crisis has caused, banks in South Africa are returning to ask for at least 30% equity or deposit before issuing a bond.

The reason why the banks have returned to insist a 30% equity on a property is that they refuse to expose themselves to a 100% risk. If the bond holder defaults on their payments, the bank needs to know that they will have every chance of recovering the total sum of money that they have lent against the property. Any devaluation on the property should fall upon the owner and not the bank.

Bonds against property purchase are for the long term, running from a minimum period of ten years up to a maximum of thirty. Statistics show that the people or person who applies for a bond for the first time are in their early thirties, in regular employment and have displayed financial stability for a few years before applying.

Banks who issue bonds are entitled to ask for banks statements and details of income of both parties in the case of a joint bond against a property. Although the will never officially admit this, they like to see that the extent of bond repayments be no more than one third of the joint net salaries of the buyers.
Owning a property is a responsibility and one that most people should strive to achieve. Taking a bond from a bank should make it home ownership a reality.