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The collapse of the property market in 2008 brought with it a lot of negative sentiment as everyone tried to grapple with what went wrong. There was talk of reckless banks, irresponsible borrowers, greedy developers and toothless regulators. The ensuing recession didn’t help matters either.
The fall out of all this is that credit has been very difficult to come by in recent years, and there is no denying that we are still in very tough economic times. The good news is that there are signs of improvement: the bank decline ratio decreased by 1.2% month-on-month in March and the ratio of applicants declined by one lender but approved by another increased by 1.6% year-on-year to 24.3%; inflation has also pulled back to 6% improving the chances that the Repo rate will be maintained at a record low of 5.5%.
This may therefore be a good time to apply for that additional credit that has been so hard to come by in recent years. But what are the options available, and under what circumstances can increasing one’s debt still be deemed a responsible choice?
An option may be to take a second bond, meaning an additional bond with another lender, secured by your current property. To qualify for a second bond you need the same requirements as you did for your first bond:
There are however barriers to accessing such finance, the main one being the consent of your existing bond holder. If your existing bond holder agrees, you will be able to register a new bond over the available equity in your property. The second bond holder would also have to waive preference, meaning that in the event of the property being auctioned, the first bond holder gets paid first, and the second makes do with the leftovers. For this reason, second bonds may carry higher interest rates.
Many bond providers are now refusing to give consent because the second bond holder can stop the transfer of the property in the event of a private sale. The second bond holder would normally only allow the transfer if the proceeds are sufficient to settle their loan, which is not always the case. A second bond holder cannot however prevent a property from being sold at a sale in execution. If you are unable to get the required consent, the best option is to apply for a further bond with your existing provider rather than a 3rd party. Remember that your home loan is structured to pay off a long term debt. It is therefore advisable to only take a second bond if it places you in a better long term position, either through debt consolidation, or by investing the funds in your home to create a long term asset with a value equal or greater than the initial debt.
If you choose to use debt consolidation you need to practice financial self-control by repaying your short term debt in full and not entering into new debt agreements. You will now effectively paying off short term debt over a much longer period, so be sensible and use the money you are saving to repay your home loan faster.
If you do not have any equity in your home but you have the affordability, a Personal Loan may be a viable option for you. Ironically, it is the National Credit Act which has facilitated the recent popularity in unsecured lending by removing the limitations of the Usury Act, which had a maximum loan value of just R10,000. The total amount of unsecured loans has increased by 25% in the last quarter of 2011, and 57% over the last year.
It is time to dispel any pre-conceived notions you may have about personal loans, and accept that this can be a useful source of credit for everyone. You can quite responsibly take a Personal loan, provided you do so for a responsible reason. Personal loans are an expensive form of credit, but bear in mind that they carry some benefits over a second bond:
Personal Loans, if used correctly, can be a viable option for consumers who lack immediate equity in their property.
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