MAIN IMAGE: Renier Kriek, managing director at Sentinel Homes
Buying a home is a big financial decision for anyone with most South Africans having to apply for a mortgage. Freelancers, commission earners, contract workers, and the self-employed to mention a few, know that this process is even more difficult without a salary slip.
Sentinel Homes is a new home finance business that offers home finance using an old structure – the instalment sale. According to Renier Kriek, managing director at Sentinel Homes instalment sales address the issue of these orphan categories of home finance applicants, while at the same time being the only alternative to the mortgage bond for home finance.
The business opened its doors in 2018 and is currently registering between 10 and 20 home loans transaction per month. “Our goal is to steadily increase volumes in the current market, as we have been, making property owners out of those who could previously only rent or had to settle for low LTV offers and the associated discomfort. Our country must also broaden the home finance industry toward the gap market, with a functioning and practical FLISP-associated offering. We are working on this as one of our medium-term goals. Getting FLISP to work is slightly challenging but we can get all the well-meaning public sector actors to go along with us in the end”, shares Kriek.
How does an instalment sale work?
Essentially the process is the same as with a mortgage, however, certain criteria have to be met:
- The market value of the residential property must be above R400 000;
- The total finance granted must not exceed R2.9 million;
- The home must be located in the Western Cape, Gauteng, eThekwini (Durban metropolitan area),Nelson Mandela Bay (Gqeberha and Kariega metropolitan area), Mangaung (Bloemfontein metropolitan area)or Buffalo City (East London metropolitan area). This includes Estate agents and Bond originators;
- A minimum deposit of 5% of the purchase price is required;
- The applicant should have a good credit record, without judgments or adverse accounts.
How does an instalment sale differ from a mortgage?
Kriek says that there is little practical difference if the consumer complies with their obligations. The main practical differences are:
An instalment sale home loan is registered slightly differently at the Deeds Office:
In a mortgage-financed transaction, the buyer/borrower obtains title, and the bank/financier has rights recorded through an endorsement. In an instalment sale, the financier obtains the title, and the buyer/borrower has their rights recorded through an endorsement, which is the other way around. This has no practical effect for as long as the buyer complies with their obligations under the finance agreement and all the practical consequences are the same as with a bond: any increase in value is for the buyer’s account; any risk in the property is theirs; they can sell the property at any time provided they settle the home loan against transfer; they can make renovations, but if the law requires submission of building plans, they need our consent; etc.; etc. All the practical matters work just like a bonded home purchase.
The second difference refers to compliance issues as Kriek explains:
“Unlike foreclosure under a mortgage, our remedy in the case of non-payment and abject unreasonableness/refusal to negotiate a realistic reprieve, is an eviction, like a landlord. And because we have this seemingly more severe remedy, our non-performing borrowers tend to be reasonable. If they cannot pay, they let us know in advance”.
Additional Consumer protection
While all housing finance in South Africa is regulated, instalment sales also benefit from the protections offered by the Alienation of Land Act which contains a complete consumer protection framework for instalment sales of land, like the National Credit Act is a consumer protection framework for consumer debt. Both consumer protection frameworks apply to our instalment sale home finance business.
Appeal to estate agents
Kriek advises agents to prompt their bond originator service providers to send the home loan applications to Sentinel Homes as well, especially the slightly or seemingly challenging ones, “It comes at no extra costs to send the application our way and have our quotation at hand – it can bring a lot of calm to a transaction if there is a home loan quote early in the suspensive condition period”.
No delays
“Agents are often worried that our involvement will somehow delay the transaction. There is no reason that should be the case. Our transactions are often faster to register than mortgaged purchases”, says Kriek.
The instalment sales financing offered by Sentinel Homes is still fairly limited in scope, but for those who qualify, applying for this financing vehicle could well mean the difference between buying a home or not.
