South African Mortgages
When buying your South African property, it is helpful toif you understand the local mortgage market. Below you will find some information on financing options for your property purchase in South African purchase.
The mortgage, or bond market, in South Africa is very well developed with many similarities between the British and European markets. However, one big difference is that self-certification mortgages are not generally available.
Non-residents are restricted to borrowing 50% of the purchase price. Therefore, on a house costing 1,000,000 ZAR (70,000 GBP), the buyer will be required to fund 500,000 ZAR, which must be brought into the country through the South African Reserve Bank. Once these funds have been officially recorded, a bond for the other 500,000 ZAR can be raised. In theory, a non-resident who has consistently brought funds into the country for the purchase of property over a number of years may borrow a sum of up to 100% of the amount that has been imported, allowing some purchasers to fund a bond of more than 50% of a property purchase.
The non-resident is not obliged to open a bank account in South Africa with a commercial bank as funds can be paid directly from overseas bank accounts into the mortgage account. Nevertheless if the loan is through a bank, then the bank will usually insist on a local account. All loans to foreign property buyers are subject to exchange control approval by the South African Reserve Bank.
Loan amounts in South Africa are calculated according to the ability of the borrower to repay the loan and are calculated on a ratio of income to repayments. The rental value of a property can be taken into account when applying for a mortgage, but usually a copy of the rental agreement must be lodged with the lending bank.
Required Documentation for a Mortgage Application
- Bond (mortgage) application forms
- Copies of ID Document (passport in the case of non-residents)
- Proof of income
- Bank statements for 3-6 months
- Offer to purchase
- Other appropriate documents (e.g. rental agreement)
- Current financial statements if you operate a business (the bank might also call for the preceding 2 years finance)
- Certificate from the South African Reserve Bank.
A Variable Rate Mortgage is most familiar to property buyers and is one in which the the interest rate fluctuates. Taking out this type of mortgage is advantageous when the buyer feels that interest rates will go down rather than up.
Fixed Rate Mortgages are also available, in which the interest rate remains steady for an agreed term. This type of mortgage is often more expensive, but beneficial in a market where interest rates look as if they are going up.
With a Step-down or Reducing Rate mortgage the interest rate decreases regardless of whether interest rates go up or down for an agreed time. The reducing rate option usually applies for an agreed timescale, usually about 5 years.
The BA SAFEX Linked Rate is set by an association of South African banks and is not linked with the home loan base rate. This loan guarantees a fixed rate for three months, in line with short term lending rates, and the rate will change every three months in accordance with these lending rates.
The last two loan types are subject to stringent loan criteria and are not usually available to every property purchaser.
If you have property in your own country and would like to borrow against this in an equity release plan, we can introduce you to independent financial advisors who can help you raise the necessary finance in South Africa.
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