will rise bank ombudsman warns potential buyers
The Bank Ombudsman, Neville Melville, has warned those people entering into the property market without having acquired the necessary skills that "things are not as rosy as they seem;"
This follows closely
on Absa Bank senior economist, Jacques du Toit's warning to potential
investors to be extremely careful before buying a first home, or a second
home to rent in the current rising market if they don't have the resources
to keep their heads above water when interest rate rise, as they must
some time in the future.
"Make sure you have a margin for comfort. If, for example, your tenant does the dirty and skips, you'll have to continue servicing the bond."
Melville, who is an advocate, is in a unique position; he can base his assessment of what's happening in the market on the complaints he receives, and his gut feeling of what is likely to happen on documented previous experience.
The current situation is that 20% of the case he receives are property related, and this percentage is likely to rise. They concern mortgages, repossessions, incorrect interest rates and incorrect deductions.
He has also received a few cases regarding builders getting blank completion certificates signed, filling them in and presenting them to the bank for premature payment.
He based current property-related problems he is having to resolve on the truism "that once people realise something id good they jump on the bandwagon when it's already too late, as they did with unit trusts some years ago.
"Based on past experience, we anticipate that people will over-extend themselves. They'll be very glad now that banks give them credit, but 18 months later when they're in trouble and not meeting their repayment schedules they will blame the banks for lending them too much money, and not warning them that the market could turn, and that the rental market would become a lot tougher and rebound on some people."
Many also have completely the wrong impression of what a bank's assessor is expected to do.
he said: "They believe once a property has been assessed and a bond granted, the assessor has confirmed it's worth the asking price.
"That's not the case, and we expect," said Melville.
He explained that an assessor's function is to ensure that a bank's investment in the property is secure if things turn sour.
"If a buyer has put in 50% of the price he will feel there's enough security, so the bank's investment has been covered. property agents also trade on that.
"An assessor is there only for the benefit of the bank. The Code of Banking Conduct doesn't expect him to assess the value of the property, or to state whether it's in good condition or not. But people believe that once a loan has been approved the property is worth the asking price."
His office, he said, "would far rather people didn't get themselves into trouble . We would prefer them to avoid the pitfalls, particularly in areas of investment they're not familiar with, because, in worst-case scenarios, banks will repossess properties and put them on auction, as they did often in 1998."